4 Things to Remember About Credit Card Processing

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You’ve probably wondered, “What is Credit Card Processing?” If so, this article will help you understand the fees and rates associated with credit card processing and ultimately determine which best mobile credit card processor is suitable for your business. Listed below are some important things you may want to know about credit card processing that can help you make an informed decision. So read on to learn more!

1. Processing a credit card

There are some players involved in processing a credit card payment. The various service providers charge varying fees for their services, and the information below will give you an overview of the various processes involved. Ultimately, accepting credit card payments is akin to receiving a loan. Although getting credit cards is simple and quick, certain steps need to be followed to ensure security.

Before processing a credit card transaction, the cardholder must first swipe their card. It will then send data to the merchant’s POS device and the cardholder’s bank. The process can be broken down into three distinct stages: authorization, clearing, and settlement. Each step is essential to the smooth operation of the entire transaction. Once the authorization process is completed, the merchant will receive payment. The payment processor will then transfer funds from the credit card transaction to the business’ bank account. After a merchant receives the funds from a credit card transaction, the acquiring processor will deduct the processing fees and deposit the funds into the business’s bank account.

2. Costs of credit card processing

Accepting credit cards will help increase your bottom line. Many merchant service providers charge excessive fees, making it difficult for you to make a clear comparison. The following are three things to consider to determine how much you should spend. Also, understand that there are two types of merchant service providers. Each one has its fees.

Avoid surcharging. Credit card processing fees can depress sales, so avoid surcharging customers. In addition, surcharging has its legal consequences. Customers may not like it so that they can file complaints against you with the state attorney general. To help protect your business, consider offering cash discounts or accepting cash payments instead of credit card processing fees. Depending on the type of card you accept, you can also provide your customers with a discount on cash payments.

3. Rates of credit card processing

Credit card processing rates are a complicated topic, and it’s crucial to understand them to avoid getting ripped off. These fees vary depending on the card you’re accepting and include interchange fees and assessment fees. Interchange fees go to the credit card networks and issuer banks and are non-negotiable. A good rule of thumb is to avoid processing fees higher than what you’re comfortable with. Some providers offer different rate structures, with fixed rates and downgrade fees. These fees depend on transaction processing and industry and the timeliness of transition. Other types of rates, such as blended rates, are flat and apply to various transactions. Finally, interchange-plus pricing is the most common model for processing credit cards. The credit card networks determine this type of pricing, and it includes fees for both Visa and MasterCard transactions.

4. Chargeback fees

When a customer disputes the purchase amount on their credit card, the merchant must pay a chargeback fee. The card issuer will match the chargeback request against a chargeback reason code to see what type of evidence they need to present. If the merchant accepts the chargeback, the payment processor and acquiring bank will reverse the transaction and transfer the funds to the cardholder’s issuing bank. In the meantime, the merchant loses the original payment amount and the chargeback fee. While chargebacks are an inevitable part of credit card acceptance, businesses can improve policies, processes, and practices to reduce the number of chargebacks.