As a consumer you might not think about the process involved after you swipe your credit card at a store, mainly because to you it seems to take just a few seconds. What you might not realize is that a lot happens in those few seconds and even more happens after you have left the store.
This process is known as credit card processing and every business that takes credit card payments has to be enrolled in a credit card processing service. Websites like TopTenReviews are great places to see multiple processing options compared.
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Just as it is important to know how a credit card transaction actually works, it is also important to know how making certain purchases or using your credit card irresponsibly can affect your personal credit score. Suze Orman and SmartMoney are two well-known and well-respected websites that offer this type of information.
What is credit card processing?
Credit card processing is everything that happens after a consumer swipes their credit card at a store. Most people do not know that the merchant has to pay for this service. A fee is deducted from every transaction that is processed by the merchant. These fees are taken into account when the merchant is determining the price of their merchandise.
How does credit card processing work?
There are four steps involved in credit card processing. These steps include authorization, batching, clearing, and funding. The authorization step is the only one in which the cardholder is actually present. Once the cardholder swipes the credit card, the information is sent to the acquirer. The acquirer is the credit card processing service.
The acquirer then sends this information through the credit card network. The card network is the type of credit card the cardholder has. The most well-known credit card networks are Visa, American Express, and Master Card. The information is sent by the acquirer through the card network to the issuer. The credit card issuer is also known as a credit card provider. The issuer is the organization the cardholder got their credit card from like Chase, Bank of America, or Capital One.
Once that transaction information is sent to the issuer they let the acquirer know if the cardholder has credit available. If there is credit available, the acquirer sends this information back to the merchant and the consumer is able to leave with their purchase. Even though this is a very extensive process, it only takes a few seconds in the store.
The last three steps involved do not include the cardholder at all. The merchant collects all of the data for each credit card transaction throughout the day. At the end of the day, the data is sent to the acquirer to receive their payment. This step is known as batching.
The clearing step involves the acquirer sending that data through the card network to the credit card issuer. The issuer processes these payments and sends the funds back to the acquirer minus the issuer’s interchange fees. The acquirer then subtracts their discount fees from that amount and sends the funds to the merchant. This final step is known as funding.
What should a merchant look for in a credit card processor?
It is important for the merchant to choose a credit card processing service that accepts as many credit card networks as possible. The majority of processors accept both Visa and Master Card, but they do not always accept American Express.
The merchant should also look at the total cost with fees that they will have to pay each month. If the processor has very high monthly costs, this will eat into the merchant’s profits severely. So finding a processor with the lowest costs each month is every merchant’s goal.
Technology can be temperamental at times so the merchant should also choose a credit card processor that has a good customer service feature. The best processors have a customer service line that can be used 24 hours a day seven days a week. They also have more than one way the merchant can contact them. Being able to contact the processor via phone, email, and even instant message helps the merchant keep everything running smoothly.
Many stores today have some type of online store, so most merchants also want a processor that allows them to accept Internet payments.
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