Credit Card Processing: Every Detail You Need to Know
When you accept credit cards for your business, you must hire a credit card processing company. Their role is to help you process payments from your customers and make critical business decisions.
By having your posabit login the trusted payment platform deals with everything, allowing you to accept debit payments, but you also need to know what it involves, how they charge, and your options. It will help you to make better decisions and establish viable solutions for your business and customers.
This article looks at what it involves and the parties involved to help you gain better insight into credit card processing.
1. Parties Involved
Various groups fulfill the payment when your customer swipes their card. They include:
Merchant
The business that accepts credit card payments and requires processing services. As a merchant, you can try offshore credit card processing for long term success.
Cardholder
He is the owner of the credit card, who starts the process by swiping the card to pay for the purchase.
Card Association
They are credit card brands such as Visa, Mastercard, or Discover. They set the interchange fees, assessment fees, and PCI DSS standards.
Issuing Bank
It’s the cardholder’s bank that determines if their account has sufficient funds to complete the transaction.
Acquiring Bank
The acquiring bank is where you deposit the business funds and other monies. It also accepts deposits from the issuing bank.
Payment Processor
The company that processes and batches purchases paid for using credit, debit, or gift cards.
2. The Payment Process
It occurs in three stages: authorization, settlement, and funding. We look at each of them below.
Authorization
Authorization begins when your customer swipes their card through the processing terminal. The terminal recognizes the card and sends information to the credit card processing company, which allows the payment. The request can also originate from the point of sale system, website gateway, mobile or in-app payment.
After authorizing the payment, the processing company sends the payment to your business’ bank account through merchant service providers. Sometimes, it declines the request, especially when there are insufficient funds in the customer’s account or is using an expired card.
The issuing bank will then send the approval or denial status to the card association, the merchant bank, and the merchant.
Settlement and Funding
You have to send the transaction authorization to the payment processor, who will forward the information to card associations. The card associations then inform the issuing bank of the correct debit amount.
The issuing bank charges the customer’s account the same amount as the transaction, which it transfers to your bank less the fees. The bank then transfers it to your account.
3. Processing Fees
These are fees that the provider charges your business for the services they offer you. The charges vary from one merchant to another, so always check to ensure they do not overcharge you. It includes:
Transaction Fee
The company charges the transaction fees every time a credit card transaction occurs. These mandatory fees include the interchange and cents per transaction fees.
Interchange fees cover transaction processing, payment approval risk, and bad debt and fraud risk. They are a percentage of the total cost of the purchases, plus the transaction fee set by the card network.
These rates depend on the type of card the customer has, although the average is 1.8%. For cards that are more expensive to maintain, the interchange fees are usually high.
Assessment Fee
This fee is a mandatory one that the card network charges you for their service. The total assessment fees vary with the total amount of transactions that you make. The risk level also affects the amount that you will pay.
Payment Processor Markup (Processing Fee)
This fee varies depending on the processor’s pricing plan. Some processors deduct between 20% and 30% of the total charges on credit cards.
Recurring Fees
These are non-mandatory fees that your provider may charge you. You can check your statements to see how much they are charging.
The company may charge it as monthly minimum fees, statement fees, batch fees, next-day funding fees, annual or monthly fees, or IRS report fees.
4. Pricing Models
It is the charging plan the processor uses when billing you for their services. They include:
Flat Rate
The fee they charge is the same for all cards, usually 2.9% or the base rate, and a small per-transaction fee, e.g., 2.9% + $0.8. It might seem inexpensive at first, but the more cards you process, the more you pay, especially if most cards have a low interchange rate.
Simple Flat Rate Subscription
It is the best choice, as you pay a certain monthly membership fee instead of the interchange’s direct cost. You do not need to pay the direct costs and flat membership fee when you take this subscription.
Tiered Rate
The amount of fee you will pay in this model depends on the type of cards the customers use, the risk level of the transaction, and the total transaction volume. It is the most expensive and complex model, making it the least transparent.
Interchange Plus
Here, the processor charges you a percentage of the transaction plus a fixed per-transaction fee, say 1.58% plus $1.5.
Conclusion
Using credit cards for payment is more convenient for you and the customer. Processing payments with credit cards occurs relatively quickly, but there is a lot of communication before receiving payment.
