Credit Card Processing
One of the most convenient forms of financing now is the use of credit card! We are sure a lot of people enjoy its benefits, right? They get to buy things in supermarkets and other business establishments as long as they have their credit card with them!
Do you want to enjoy the same benefits as other people are enjoying? What is the best catch? You get to enjoy your purchased goods or products and pay the amount later. Great, isn’t it?
But do you know that the little card you are holding is much more complicated than it looks? Why don’t we take a peek of how a credit card is being processed.
Who are the parties involved?
1. Merchant – A business establishment that accepts the payment and one that is in need of a card processing.
2. Cardholder – The person who owns the credit card and is some who purchases goods and other products.
3. Acquiring Bank – The merchant’s bank. They accept the payment on behalf of the merchant and deposits the money into the merchant’s account.
4. Issuing Bank – The cardholder’s bank. They issue the card and pays for the purchases that the cardholder’s made based on the terms and conditions they agreed upon the approval of the card. . This bank is a part of a card association.
5. Payment Processor – This is the intermediary party that handles the processing and grouping of purchases made with the credit card by the cardholder to all parties involved.
6. Card Association – The governing bodies that set interchanging rates, reconcile acquiring and issuing banks. They are also accountable in preserving and cultivating their chosen card networks. Examples of this card association are: American Express, Mastercard, VISA, and Discover.
How is the payment method done?
In paying your credit card purchase, all parties are involved. Let us see the payment flow of paying credit card purchases.
1. The cardholder purchases an item.
2. The processor sends authorization to
3. The card is authorized.
4. Through a licensed merchant services provider, the credit card processing company transmits the payment to the business’s bank.
5. The payment is deposited into the corresponding merchant bank account by the business’s bank.
6. The statement is provided to the firm at the end of the month, including the interchange for all transactions – the price established by credit card issuers for businesses to accept their cards as payment.
However, the convenience of having this credit card is intertwined with various fees since it involves various parties.
What are the fees that come with the acquisition of this card? Below are the following:
1. One-Off Fees – One-off fees are those that happen only once. PCI compliance fees, early termination fees, terminal fees setup fees, reprogramming fees, PCI compliance fees, address verification fees, payment gateway fees chargeback and retrieval fees are examples of these.
2. Transaction Fees – Each transaction you conduct incurs transaction fees. They are divided into interchange and cents per transaction. Because they are set by the credit card companies, these are the only mandatory fees associated with credit card processing. You are essentially paying Mastercard, VISA, Recover to accept their cards.
3. Recurring Fees – In addition to interchange, many providers profit by charging non-mandatory merchant fees to businesses. These fees appear frequently on your monthly bill, but they are never required in order to accept credit card payments.
On your monthly statement, keep an eye out for monthly minimum fees, statement fees, batch fees, next day funding fees, annual fees, IRS report fees, and other charges.
What are the Pricing Models for Credit Card Processing?
1. Flat Rate – Flat rate pricing is a variation on percentage markup pricing. Instead of charging a percentage on top of the interchange (which means that each card’s final cost will be different), flat-rate models charge the same percentage to all cards. Square is the most well-known example of this. With Square, you’ll always pay 2.9 percent regardless of which card is used.
2. Simple Flat Rate Subscription – Subscription-based pricing models are frequently the best option for businesses. In exchange for the direct cost of interchange, a monthly membership is paid. Essentially, no matter how much you process, you only have to be concerned with the direct cost of the cards you’ve processed and a flat membership fee.
3. Tiered Rate – Tiered rates, by far the most expensive pricing model, place different cards in different tiers and charge based on those qualifications. The most important aspect of this model to remember is that the tiers are arbitrary and determined by the provider. Providers keep track of the most popular card types, place them in the most expensive tier, or charge extra fees for a variety of ambiguous online credit card processing services.
These models are rarely questioned because businesses frequently believe there is some kind of logic behind the groupings. Because there isn’t, it’s important to have an open conversation with your provider if you see terms like “qualified,” “mid-qualified,” or “non-qualified” on your application.
4. Percentage Markup – Providers will charge an extra percentage on top of interchange for each transaction run. Because interchange varies by card type, there is no way to predict how much you will pay each month with this pricing model. The more you process, the more you’ll have to pay in markups.
Credit Card Processing comprises a lot of charges. For you to fully understand them all, why don’t you give us a call or message us so that we can explain thoroughly how these can affect your terms of payments and possible interest rates if the cardholder fails to pay.
We will be very pleased to answer your queries!