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Friday, April 19 2024

Credit Card Payment Processing – Everything You Should Know

Credit Card Swipe
Photo Credit : Unsplash

Credit card payments process is something you might not know about. We all carry out our expensive transactions via a credit card, but do you know the complicated credit card payment process?

Knowing what you’re being charged for and what choices you have is the first step towards improving your payment processing experience. To learn more about advantages of credit card processing, read this article and know the steps involved in payment processing.

Participants in Credit Card Transactions

When a customer pays with a credit card, it involves a chain of events with multiple participants. To name a few:

  • Cardholder – . The term “cardholder” refers to the actual owner of the credit card who is making the payment.
  • Merchant – The company who is taking payments is the merchant and they need a credit card processor for this transaction to complete.
  • Card associations – Visa, Mastercard, American Express make up the Card Association. These organisations are not financial institutions but regulators and arbitrators between acquiring and issuing banks. In addition, they are accountable for the continued development and upkeep of their respective card networks.
  • Acquiring bank – The bank that has acquired the company (or merchant). Money from a sale is held there and acquired on behalf of the merchant. Once a card is authorised, the sale proceeds deposit into the business’ bank account.
  • Issuing bank – The bank that issued the card to the customer also participates as they transfer funds to compensate acquiring banks for the goods and services purchased by cardholders. When apply for credit card, know how your issuing bank participates in the transaction. This way, you’ll have a better understanding of the payment method. Plus it is good to build your credit score.
  • Payment processor – Credit card transactions are processed by a payment processor. They mediate between the card networks and the financial institutions, helping with technological needs and customer service.

Methods of Payment

The entities above are all involved when customers pay with a credit card to credit card payment. Here’s a quick rundown of who does what during the money transfer process.

Let’s say a customer makes a purchase using their credit card.

  • They swipe, dip, or tap it on a point-of-sale terminal or credit card reader. After that, they will attempt to get authorisation from the credit card company.
  • The card transaction is approved then
  • The credit card processing companies send the payment to the business’s bank
  • The company’s bank transfers the funds to the merchant’s bank account
  • Credit card companies charge businesses a fee called interchange whenever they accept credit card payment

Authorization of credit card purchases typically takes less than one minute. Once a transaction is settled, a bank typically deposits the funds within two business days into a merchant’s account. When it comes to payouts, merchant service providers can vary greatly. Some offer instantaneous funding, while others take a day or two.

Chargebacks to protect consumers

Fraudulent activity is a common issue for credit card users as they occur when a consumer disputes a certain charge to their account. If a chargeback complaint is for a lost or stolen card, the reversal of funds happens. This means that your company is responsible for the cost of the chargeback.

Here are some ways to avoid chargebacks:

  • Ensure proper credit card processing
  • Use an online credit card processing company with strong security standards
  • As a company, you should have a contract in place that details exactly what the payment is for to minimise the risk of delivery and payment.
  • Exceptional customer service help customers resolve issues with the company directly

Once you receive notice of a chargeback, remember that the process can take weeks to complete. During this time the funds are held by the bank and they ask for proof of purchase from the merchant.

Also Read: Top Reasons To Avoid Credit Card Late Payments

Payment Processing Service Fees for Credit Cards

Given our current familiarity with the various players and their interdependencies, it seems appropriate to examine the different transaction fees that may be incurred. Keep an eye on your monthly bill to ensure you are paying only a little for credit card processing; this varies depending on your merchant services provider.

The fees associated with accepting credit cards should also be considered. Transaction fees, interchange rates, PCI compliance costs, and others are just some of the fees that may apply. Since these are the only fees required by credit card companies, they are the only ones associated with processing credit card payments.

Depending on the type of card you use, you may be charged a different amount when making an exchange. The higher the rewards, cashback, and perk structures of a credit card, the higher the interchange.

Photo by Mark OFlynn on Unsplash

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