What Is Credit Card Processing?
When you tap your credit card on the terminal or enter card details into the payment gateway window, it seems to you that this process, which takes a matter of seconds, is very simple and straightforward. However, the card payment process is much more complex. It requires multiple steps and involves numerous sides.
In simple terms, this process consists of a series of operations that ensure the execution of a payment made using a credit card online or offline. Processing credit card payments involves such stages as authorization, card details authentication, and settlement between the business, the cardholder, and the relevant financial institution.
Sides Involved In Card Processing
Despite the fact that a customer's payment for a company's product/service seems to involve payment from one side to another, many more parties are involved. Each party involved is responsible for a specific stage of the credit card payment process.
Cardholder
The cardholder (also known as cardmember) is the client who starts the entire payment process when they decide to buy a product in your store. This is an individual who owns a credit card issued by the relevant financial institution.
Merchant
This party can be both an individual and a business. The merchant is the side that accepts payments made via credit cards for the services or goods it sells.
Acquiring Bank
The acquiring bank is also called the merchant’s bank because it is used by the merchant to store their business funds and accept transactions from customers. Once the customer confirms the payment, the merchant bank accepts an authorization request from the seller, transfers it to the issuing bank, and redirects the issuing bank’s response to the seller. The acquiring bank can perform credit card payment processor functions.
Issuing Bank
This is the bank that serves the cardholder and has provided them with a credit card. The importance of this bank participation in credit card processing lies in the fact that the bank determines the cardholder’s paying capacity. It checks the availability of funds in the client's account to complete the payment and releases the requested amount for settlement.
Card Networks
This processing party is also known as the credit card brand. This is a network or a brand that supports the client’s card, like Visa, MasterCard, Discover, American Express, etc. The network assures the interchange and grading fees setting and is responsible for PCI DSS ((Payment Card Industry Data Security Standards) compliance.
Payment Gateway
This is a technology that serves as a connection between the seller and the processor. The gateway is integrated directly into the store’s website, collects the client’s payment details, and forwards them to the processor or the seller’s bank. If the verification of the cardholder and their account is successful, the gateway informs the seller about this.
Payment Processor
This party of the payment card processing is responsible for the communication between the seller, the card network, and the issuing bank. The processor maintains compliance with the PCI DSS.
POS System
The point-of-sale system is the hardware and software that is used by businesses for accepting and processing credit card transactions. The system includes card readers, terminals, and software apps.
How Does Credit Card Processing Work Step-By-Step
We have already mentioned that payment processing is a multi-step process. Here is a breakdown of how credit card processing works.
Authorization
In this card payment processing stage, the seller needs to receive payment approval from the credit card issuing bank. The process includes the following steps:
- The customer provides the merchant with their credit card details to pay for the order.
- The seller sends a transaction authorization request to the payment processor.
- The processor transfers the transaction details to the credit card network (Visa, MasterCard, etc.), which must decline or approve the operation.
- In case of payment approval, the card brand sends an authorization request to the issuing bank.
- The issuing bank passes the decision to the card network, which forwards it to the merchant.
Settlement
The settlement stage includes the transfer of the payment amount from the issuing bank to the acquiring one. This stage involves such steps:
- The vendor sends batches of authorized transactions to the payment processor.
- The processor forwards the authorizations to the credit card network.
- The credit card network passes them to the cardholder’s bank.
Funding
At this credit card payment processing stage, the money finally reaches the merchant's account. The process usually takes several days and includes the following steps:
- The cardholder bank transfers the determined payment amount to the acquiring bank and requires an interchange fee (this takes from 24 to 48 hours).
- The acquiring bank accepts the funds and delivers them to the vendor’s account.
How To Choose A Credit Card Payment System
The choice of credit card payment system affects the quality of the payment process and customer payment experience. In order to make an informed decision and pick the best option, you need to take into account the following factors:
- Costs and fees. Analyze the monthly and annual frequency of transactions and the average amount of transfers in order to select a system with the most favorable tariff.
- Credit card fraud protection and security. Make sure the credit card processing system provides compliance with PCI DSS and EMV (Europay, MasterCard, and Visa) standards. Also, consider such security measures as tokenization, data encryption, and biometrics.
- Merchant services. If the system is e-commerce-oriented, it will provide a special service for sellers and offer a merchant account, which simplifies the integration process.
- Customer support. Technical support for the payment system should be available 24/7 through different communication channels so that any problem can be instantly resolved without causing inconvenience to your customers.
- Additional services. Any extra features, such as engagement programs, reporting tools, mobile applications, inventory organization, etc., can enhance the quality of the business service you offer.
Cost And Fees
Let’s discuss the main costs and fees that accompany credit card processing:
- Setup fees. A lot of processors require a one-time commission for the merchant account creation and processing service activation.
- Monthly and/or annual fees. Some services set regular fees for account maintenance, additional features, and reporting and charge them every month or once a year.
- Terminal and equipment fees. To be able to accept credit card payments, businesses need to integrate card readers, POS terminals, or other equipment. So, you should consider the software update and maintenance fee in addition to the purchase or rental cost.
- PCI compliance fees. To guarantee the security of credit card payments processing and protect the cardmember data, PCI compliance is a necessity. Although processors often include payment for PCI compliance in a regular or setup fee, there are systems that charge a separate payment.
- Chargeback fees. Some processors charge the merchant a fee for the customer refund process.
Top Credit Card Payment Processors
We analyzed the top card payments process providers. Read a brief overview of each system to choose the most suitable option that will help boost your business.
Payment Depot
Monthly fee: from $79
Processing fee: 0% + $0.18
Payment Depot is an ideal choice for companies that accept a high volume of credit card transactions since it offers a subscription-based pricing model. This model allows you to pay a monthly fee and a flat per-transaction fee that is not marked up with an extra percentage.
The platform offers a lot of helpful features such as a virtual terminal, POS tools, a mobile application, etc. In addition, Payment Depot provides an impressive range of third-party credit card processing tools, including hardware equipment from First Data, Clover, Poynt, SwipeSimple, etc. The platform offers easy-to-use navigation and an intuitive reporting module.
Stripe
Monthly or annual fee: No regular fees
Processing fee: 2.9% + $0.30
Stripe is well-known as a universal option for businesses on such platforms as WooCommerce, WordPress, and Shopify. One of the main advantages of this credit card payment processor is its flat-rate, transparent pricing policy. There is a standard commission per transaction and no hidden fees.
The service is suitable for different business types. Thus, small companies will be attracted by the following features: ACH payments, crypto-friendliness, invoicing, enhanced security measures, etc. Meanwhile, businesses that enter the global market can also take advantage of improved reporting, developer tools, international payments support, etc.
Square
Monthly or annual fee: No regular fees
Processing fee: 2.6% + $0.10
Square is a leading payment processor for small and midsize businesses that offers an extensive list of hardware features and built-in POS software. The service provides different tariffs so you can choose a pricing policy yourself.
The platform offers one of the simplest interfaces and an impressive multiplicity of integration options, including the latest Cash App integration for crypto processing. One of the main benefits for SMBs is that Square assures quick access to the funds (24-48 hours).
Payline
Monthly fee: $10 in-person; $20 online
Processing fee: 0% + $0.10 in-person; 0% + $0.20 online
Payline provides a wide range of tools for both online and offline credit card payment processing. The pricing policy of the service is straightforward and affordable, which attracts small businesses that do not want to deal with complex fee structures.
What makes the service stand out from the crowd is the high-risk accounts serving. Therefore, Payline is a perfect choice for businesses that sell vitamins, tobacco, CBD, and other products/services that are considered high-risk. Additionally, it has direct integrations with multiple shopping carts and POS systems.
How To Set Up Card Payments Process Correctly
To ensure secure, transparent, and fast credit card processing, businesses should follow these guidelines:
- Determine your specific needs. Every business case requires a customized approach and an individual card processing strategy. An e-commerce retailer and a grand network platform business will have different requirements for services, fees, etc.
- Take measures to prevent fraud. Although fraud prevention tools are built into most card payment process providers, entrepreneurs still need to enhance their security. It is recommended to use such tools as AVS.
- Transactions tracking and analyzing. Monitor the transaction history on a regular basis to advance the processing strategy and detect fraud activity.
- Set a clear and simple chargeback and refund policy. The transparent policy of refunds and chargebacks will help avoid unnecessary fees and satisfy clients.
- Integrate multiple payment solutions. This will help attract new clients and advance the level of your store website.
- Update hardware and software. Regular updating and implementation of innovations will help conduct operations quickly and smoothly and improve client experience.
Learn More About Online Payments
Our platform was created to make your life as easy as possible and help you find the best payment solutions for your business. Here, you will always find the most relevant information on credit card payment processing and reliable advice from experts. In order to ensure the safety and reliability of your business’s payment system, you need to take a very balanced approach to its preparation and organization. You should know many nuances of this field, and our professional recommendations will make your work much easier.
Final Thoughts
Introducing a payment processor into the operation of the website to process credit card payments is a necessity for every company that seeks to protect itself and improve customer service. A payment processing provider will simplify and automate your business payment system offering fast and efficient communication between all processing sides in a safe digital environment. We hope our review helped you understand what credit card processing is and how to approach choosing a processor for your business.
