What is Credit Card Processing? All you Need to Know about Credit Card Processing Solutions
Looking to accept payment through credit cards? Well, good for you – this is one of the most effective ways to take your business to the next level. Not only will it boost your credibility, but it will also enhance the chances of changing your casual customers to paying shoppers. Now, as is often the case with buried treasures, there are many obstacles to overcome in this process – credit card processing can be confusing, overwhelming and expensive. In fact, some merchants refer to it as a “necessary evil” for business. But it doesn’t have to be that bad. The best way to approach online credit card processing is to first understand how it works, the charges and your options. And that is what this article is all about; giving all the important details needed to choose the right credit card processing solution for your needs.
How Credit Card Processing Works in 2020
Essentially credit card payment processing is a method whereby, a business accepts customer payments through credit cards such as American Express, Mastercard and Visa directly through their store. Just like you swipe your card when paying something at your local store, online buyers can also swipe when buying via an eCommerce site. Obviously, the main difference between the two scenarios is that during online credit card processing, there is no physical device or terminal to facilitate the payment. In other words, online credit processing is where transactions happen over the internet. This type of transition requires a payment processor and a payment gateway to share data across the web and ensure you correctly and quickly receive payments. Now, while these transactions only take a few seconds, there is a lot that goes on behind the scenes to make the process complete:
The Parties Involved
There are various aspects that come into play when a customer swipes their credit card.
- Merchant: This is the person who accepts the payment
- Cardholder: The customer who is swiping their card
- Credit card networks: Discover, American Express, Mastercard and Visa.
These are regulatory bodies that liaise between different issuing and acquiring, banks set up and maintain networks as well as determine the interchange rate.
- Acquiring bank: This is the store owner’s bank. The bank acquires and holds the money from the payment.
- Issuing bank: This is the customers’ bank. They are also part of card associations and issue credit cards to consumers. Issuing banks usually pay the acquiring banks for every payment their cardholder makes.
- Payment processor: This firm handles all the payments made with the credit card. They help with various technology needs and customer support as well. Actually they are the link between the banks and the card associations.
When your customer uses their credit card to pay you, every party mentioned above plays a role. Here is the process:
- The customer swipes the card through a terminal where the terminal contacts the credit card firm in question.
- On the next step, the card is accepted.
- Then, the credit card company sends the funds to the merchant’s bank.
- After this, the merchant then deposits the funds into the account associated with the merchant.
A statement with all the interchange details is sent to the merchant at the end of every month. This is the fee set by the credit card firms for merchants to recognize their cards.
What about International Credit Card Processing?
If you operate an eCommerce site or any other type of online business, you are perhaps accepting payments from people globally. This is where international card processing comes into play. It is basically a payment that the merchant accepts currency other than the dollar. Most credit card processing providers allow consumers to make international payments in their domestic currency but can only receive the funds in dollars. The process works in a similar way as mentioned above.
What is High-Risk Payments Processing?
If you deal with thousands of international payments, you will need to look for a high-risk credit card processor that can handle a sizeable number of overseas transactions. The high risk here means that there are extra obstacles and other financial complications.
Laws You Need to Know about international or offshore card processing
- Privacy Laws
Countries like the US, European Union, and Japan have laws the bar misuse of personal data. Such laws are meant to stop merchants from using or sharing any personal data gained during a payment. So read over the rules and regulations for the country in question before transacting. You risk lawsuits, embarrassment, and loss of business if you do not abide by these laws.
- Responsibilities of Credit Card firms
Credit card firms will not be held liable for fraudulent vendors. This technically means that if a customer makes a purchase either through online credit processing or mobile credit card processing, and the vendor swindles him or her, they cannot be held responsible for compensation.
- Legal Purchases
All credit card firms prohibit the purchasing of illegal services or items. A merchant cannot go to the company with concerns of purchase or payment that was against the law.
Payment Gateways for Credit Card Processing
Payment gateways are software applications that provide a link between an e-commerce site and the processor’s processing system. It can either be domestic or offshore merchant account credit card processing. Just like your phone’s operating system, they run in the background and your clients will not interact with them indirectly. The main objective of this gateway is to allow consumers to make payments using their payment method of choice.
Although all payment gateways support credit card purchases, there are some that allow your customers to pay using PayPal, Apple Pay, debit cards and eChecks. There are also some that maintain a database of customers’ payment data, billing and shipping addresses. This technically means that returning clients will not have to re-enter their data every time they buy something from you. This feature can easily lead to increased sales because of the convenience that it offers your buyers. Some of these payment gateways include Authorize.net, Braintree, PayPal and so on.
Credit Card Processing Fees
The old adage, “there is no such thing as freebies” certainly applies to website credit card processing. Be as it may, credit card processing internet merchant accounts may end up paying for thousands of your freebies, so the investment will pay off in one way or another. Essentially, one of the main factors for anybody looking for a simple credit card processing provider is cost. Now, when comparing various options, these are various categories you should note:
- Standard online credit card processing fees: Applies to every provider
- Discount rate: A certain percentage of every sale that is retained by the processor. It ranges from 2 to 3 percent.
- Gateway fee: Your credit card processor provides your gateway payment method. Expect it to take you back around $20 per month.
- Transaction fees: You must pay some amount for every transaction you process. They are divided into two main categories:
- Transaction fee per transaction: Occurs with every payment you process. Costs between $0.25 to $0.35 per transaction.
- Gateway fee per transaction: It depends on the gateway method you are using. Ranges between $0.06 – $0.15.
- Statement fee: Your processor sends you a document detailing all the transactions you have made. This results in what is known as a monthly statement fee. Typically costs between $10 to $15 a month.
Payment processor’s fee types
Also, depending on your credit card service provider, you may come across these fees in various ways:
- Application fee: The amount you pay when you submit your application for a merchant account. Some firms don’t charge this fee.
- Setup fee: This is what you pay for the processor to integrate your online store with your merchant account. Also, there are some firms that don’t charge this fee.
- Payment Card Industry (PCI) fees: The industry sets a list of rules to protect credit card information from cybercriminals. Most processors include this fee as part of the monthly charges while some charge it per year to help cover their certification.
- IRS compliance fee: This goes to the government. It helps ensure your service provider is meeting all the requirements provided by the IRS ( Internal Revenue Service). Costs around $2 per month. Getting the best price out of your credit card processing services
- Request interchange-plus rates: Interchange-plus rates represent the provider’s markup-per transaction fee and a percentage that is added to the quoted interchange rates set by the different credit card networks. In other pricing systems, the interchange rates also combine the markup. And because the mark-up is the only negotiable aspect of the rate, this is what you should request for when shopping around.
Request a pricing review
Whether you are an established merchant or a small business, you can request a pricing audit or review. This is important particularly if your site has grown significantly and your transaction volume has exceeded your original estimates since you signed up with the provider. You may qualify for lower rates.
Ask if some fees can be waived
Some fees can be waived. So talk to the representative. For instance, if your type of business is seasonal and you having problems paying in the offseason, the company may be willing to lower or waive it. The PCI compliance fee may also be waived once you complete the annual questionnaire. -Shop around and renegotiate your rates
Shop around for better deals. If you find better a better deal go for it or contact your preferred company to see if they can renegotiate your rates.
How to find the best credit card processor for your business:
Go for a processor that suits your needs
For a business that will be accepting $5000 or less per month, a mobile credit card processing service like PayPal or Square that doesn’t charge annual or monthly fees and charges a flat rate may be your best bet. Though the amount you will pay per sale is slightly higher, there are no regular fees so your overall cost will be still low.
Consider how you will be accepting card payments
If you will be accepting payments online or on-the-go, go for a processor that supports both. It is not only very daunting to operate multiple processors, but it may also violate your contracts as most providers prohibit merchants from working with other processors.
Find if out if there are any hidden fees
Go through the contract thoroughly to avoid paying more. If you come across any fees that the company didn’t disclose, ask them how much is it, how often it is charged and whether it is viable. Particularly look for things like chargeback fee, monthly fee, batch fee, and gateway fee. Also, avoid nonstandard charges like online reporting fees, additional services fees, audit fees, access fees and setup fees.
Get a month-to-month contract
Monthly terms allow users to switch providers easily if there is a problem with the service or if they find a better deal somewhere else.
Vet any “free” offers
Most firms offer free placement programs and equipment, nonetheless, there are some things you should consider before accepting them. Do the rates differ under the program? Must you sign a wordy contract to qualify? Are there any service, maintenance or insurance fees?
Securing Your Transactions
Formed in 2004 by the main card brands to counter fraudulent activities, Payment Card Industry Security Standards Council (PCI SSC) sets the standards in the industry. The council unveiled the Data security standard, applicable to all organizations and businesses that accept credit cards. Making sure that you follow these guidelines can help protect your business from cybercriminals.
Recommended security measures like tokenization and point to point encryption can significantly minimize your compliance responsibility as well as protect both your business and customers, making everybody happy!
Top credit card processing companies for both small and large businesses Hidden fees and unfair practices can make it very hard for small enterprises to start accepting credit card payments. Fortunately, there are some tried and tested providers that can help.
Here are the top 3 credit card processing firms for both large and small companies:
- Stripe. This is a simple credit processing company that offers one of the quickest and simplest online credit card processing services. It also offers a free API that allows users to create a custom checkout experience on their sites.
- Payline Data. Specializes mainly in high-risk credit card processing. It is ideal for businesses selling supplements and vitamins, online tech support teams and travel agencies.
- Sage. With over 40,000 users, Sage credit card processing is a well-established merchant account service, providing solutions aimed at a wide array of businesses from major corporations or single entities. It has a powerful reputation for quality service.
Alternatives to credit card processing
Alternative payment options provide customers with additional payment choices. The options are digital wallet solutions for online and mobile use, payment networks and peer to peer money transfer services. They include:
- Google Wallet
Choosing a reliable and trustworthy credit card processor for your online business is a very fundamental aspect of both your long-term and short term success. After all, this is what keeps the business going, so don’t take it for granted. Don’t go for any provider you find, do the diligent research to find the right one for your needs. Also don’t forget to ask the important questions: How will it affect my operations? What is the support like? How much will it cost me? Good luck!