To choose the best credit card processor for your business, you don’t have to be an expert in the credit card processing industry. Credit card processing can indeed be complicated, but having a basic understanding of it can be useful. A good understanding of the basics will help you identify and evaluate different payment processing options.
The right credit card processor can make a big difference in your business’s costs. There are many strategies you can use to reduce processing costs.
This guide will explain how credit card processing technology can eliminate time-consuming manual processes, automate and accelerate payments, boost revenue, increase cash flow, and empower your staff to do more strategic activities.
How Credit Card Processing Got Popular?
Credit cards are easy to use, quick, and reliable. Credit cards have become the preferred payment method in the business-to-consumer (B2C) world. The COVID-19 pandemic only made them more popular.
Since brick-and-mortar stores were closing and cash handling was replaced by contactless payments, debit processing, and credit processing have become synonymous with receiving and making payment for goods or services.
This trend isn’t just for consumer goods. In fact, there are many similarities between the B2B and business worlds. There are many opportunities to transform. The complexity of businesses’ accounts receivable operations (AR) is also increasing as they grow.
Even though there are some hurdles that B2C merchants face, such as collecting late payments and managing cash around accounts receivables, the B2B buying experience doesn’t differ from its consumer-focused counterpart.
Research shows that digital commerce is becoming more popular. Businesses that encourage and support digital commerce will experience faster growth and greater market share than those that don’t.
Businesses transacting with each other have the same needs as consumers for security, speed, and ease of use. Accepting digital payments such as credit cards is necessary for businesses that want to increase efficiency, improve their accounts receivable productivity, and make major improvements in their organizational structure.
Who’s Involved During Credit Card Processing?
The web has evolved over the years to allow credit card processing to be more efficient and complex. When a credit card transaction is made, the payment and any accompanying information are routed through many channels and governing agencies. They all work together and include:
- The Cardholder: This is the person or company who owns the payment card and makes the purchase
- The Merchant: A business owner who sells services or products.
- The Acquiring Bank: This is the merchant’s bank (where all the money goes).
- The Payment Processor: This is the processor that routes payment data to the card network. It also facilitates communications during transactions.
- The Payment Gateway: The technology establishes a secure connection between a merchant’s website and processor.
- The Card Network: This refers to credit card operating networks such as Visa and Mastercard.
- The Card Issuing Bank: This is the bank that issued the credit card.
A credit card transaction can be authorized in seconds. It takes two business days to deposit the payment into the merchant’s account after settled transactions. While some processors allow same-day or next-day deposits, others may require a longer payout period.
What is the Process of Credit Card Processing?
- Step 1: The merchant will take the cardholder’s payment details at the card terminal (with a contactless tap, magnetic stripe swipe, or chip), online or over the phone.
- Step 2: Credit card processor transmits card information to credit card network via an internet connection through a gateway.
- Step 3: The payment gateway transmits transaction data to the issuing bank in order to request authorization via card networks like Mastercard or Visa.
- Step 4: After the customer’s bank validates payment details, it authorizes the transaction amount. This authorization is sent back to the merchant via the payment processor. The transaction will be refused if there is suspicion of fraud or insufficient funds.
- Step 5: Once the transaction has been authorized, hold for the amount is placed at the issuing banks.
- Step 6: The merchant then settles batches of transactions (typically once per day), which the payment processor does.
- Step 7: The issuing bank releases funds to the acquiring banks.
- Step 8: The funds are deposited into the merchant’s bank account without any inter-and/or processor fees.
What does a Payment Processor mean?
This company handles debit and credit card transactions on behalf of a business. The front-end processors connect to card networks and manage merchant account, while the back-end processors settle transactions by moving money from issuing bank to the merchant bank.
Partnering with a payment processor is necessary if you plan to accept debit and credit card payments online from your customers.
What does a Payment Gateway mean?
This technology creates a secure link between your website or browser and your credit card processing company. This secure connection is used to encrypt credit card data, verify transaction authenticity, and protect sensitive information.
After the encrypted data has been delivered, the customer’s credit card is charged with the correct amount. The funds are then transferred directly to your bank account without any processing fees or interchange fees.
You can often set up a payment portal in partnership with your credit card processor through your merchant account provider.
It can offer some advantages, such as lower compatibility and greater cost-effectiveness. A payment processor might have its own payment gateway that allows for secure data transmission and further control of the transaction.
Credit Card Processing: The Bottom Line
The world of credit card payment processing can be confusing and complex. This guide will help you to navigate credit card processing companies and find the right partner to suit your needs.
Your business is dependent on credit card processing. Businesses who want to streamline their accounts receivable process, reduce payment fees, and speed up payment collection will find credit card processing essential. Your credit card processor should be an asset to your business’ growth and maintenance.
You will be able to provide a fast, reliable, secure, and efficient payment experience for your customers and employees. It will help you save time and allow you to remain competitive. It will also help you increase your bottom line.