We’ll cover all you need to know about credit card processing in this tutorial, along with advice on how to pick the best choice for your company.
Overview of credit card processing
To own and operate a business, you don’t have to be an expert in credit card processing. But understanding how it operates will undoubtedly be helpful.
We’ll cover all you need to know about credit card processing in this tutorial, along with advice on how to pick the best choice for your company.
Credit card processing: What is it?
It could appear quite simple to accept payments made with a credit card. With Square, the money is often placed into your account within a day or two after the customer provides you with their card. Money is deposited instantaneously with Square Instant Deposit.
It costs 1% for each deposit.) But there are a lot more things going on behind this trade. There are numerous parties involved in the transaction from the time your card is swiped or inserted until the funds are deposited into your account.
And each focuses on a crucial stage in the progression of events. Knowing the basics of credit card processing will help you identify areas where fees may apply and will also enable you to choose the credit card processing system that is best for your company.
Parties engaged in processing credit cards
Consider purchasing a latte from a store called Cup of Joe Coffee. The following are the parties to the transaction’s legal names:
- The owner of the credit card is known as the cardholder (that is, you)
- The rectangular piece of plastic with your payment information is a credit card (for example, the Capital One Quicksilver Rewards card)
- The firm that takes your credit card as payment for goods or services is known as the merchant (Cup of Joe Coffee)
- The interface the retailer uses to take credit card payments is known as the point of sale system (eg Square Reader or Stand )
Let’s examine this more closely now.
The credit card and what occurs during the same transaction include several extra components. Here are some of them:
- The issuing bank
- The purchasing bank
- The company offers services
Let’s examine each of them separately:
What is an issuing bank?
The financial institution that issues you your credit card and any associated lines of credit is known as the issuing bank. It’s essentially your credit card company.
By signing contracts with cardholders for the conditions of transaction reimbursement, issuing banks serve as an intermediary between you and credit card networks. Your issuing bank, for instance, might be Capital One.
What is an acquiring bank?
The transactions are sent by the acquiring bank, also referred to as the merchant or acquiring bank, to the network, which subsequently transmits them to the issuing bank.
Business services provider? What is it?
An organization called a merchant service provider enables businesses to accept payments from customers using credit cards, debit cards, and NFC mobile wallets (such as Apple Pay, Samsung Pay, and Android Pay).
One opens a merchant services account with a company that has connections to both issuing and acquiring banks. If your consumers want to pay for your goods or services electronically, your merchant service provider offers electronic payment of high risk merchants credit card processing.
A payment gateway – What is it?
Consider Cup of Joe Coffee as having a website where t-shirts and mugs are offered for purchase. Those online credit card purchases would be processed through the payment gateway.
The payment gateway makes it easier for data to be transferred between the acquiring bank and a payment gateway (such as a company website). To maintain the security of the entire procedure, encrypt critical information such as credit card details.
Processing Credit Cards For Business
How may a business services account be obtained?
It used to be necessary to apply for a merchant services account at a bank in order to begin processing credit cards, which may be a time-consuming process.
To begin accepting credit card payments after being approved, you must link your POS system to your merchant account.
However, things operate a little differently with Square. With acquiring banks, Square has a merchant services account. We essentially serve as one big merchant services account for all Square-using companies.
What does a high-risk account for business services mean?
Some businesses kinds can be categorized as “high risk” in the field of credit card processing. Higher fees and stricter terms could apply to high-risk business service accounts. The high risk merchants credit card processing may also be denied an account by entities.
There is no absolute rule, although some company models are more frequently recognized as high risk merchants credit card processing than others. Businesses that sell questionably legal products or services, buyers’ or members’ clubs, credit counseling or repair services, and companies that use dubious marketing strategies are a few examples.
How does the processing of credit cards work?
After examining every component involved in credit card processing, let’s examine how it all functions. Let’s revisit the Cup of Joe Coffee illustration. The waitress takes your card, which you hand her, and processes it. What follows is what?
Here’s how to use Square to process a credit card:
- Authorization
A request is sent to Square whenever a merchant swipes or inserts (in the case of EMV) a customer’s card. The acquiring bank will then send the transaction to the issuing bank for authorization when we have sent it to them.
The issuing bank confirms there are enough funds. In order to assess whether the transaction is secure, it also submits the transaction to fraud models (to protect the cardholder and the issuing bank).
- Lottery
This is the settlement phase, in which funds from a transaction are transferred to the acquiring entity to kick off the merchant’s account’s deposit procedure. Because the payments are made in bulk, it is called a lottery.
Financing (also known as liquidation) (also known as liquidation)
When businesses deposit the money from a credit card sale into their account, this is known as the financing (or settlement) stage.
The normal deposit turnaround time for Square is one to two business days. However, if you set up Square Instant Deposit, you receive your money immediately and around the clock. The cost is just one percent per deposit.
Processing costs for credit cards
When it comes to credit card processing, many businesses have a lot of hidden costs.
Transaction fees (such as exchange refunds and assessments), set fees (like PCI fees, annual fees, early termination fees, and minimum monthly fees), and incidental fees are some examples of these that may apply (such as payment returns or verification services). In contrast, none of these costs apply to Square.
