Credit Card Processing Made Easy for Small Businesses

Small businesses run on a tight budget and every little bit counts. Also, customers want sales to go through quickly and hence, they usually offer credit cards against purchases. For a small business owner, this means investing in a card reader, setting up a merchant account and paying a service fee to accept credit and debit cards. However, you should know a few things about credit card processing before you sign a contract with a company offering merchant services. 

We’ve listed below for you a few things you should consider and do before short listing a particular merchant service provider. 

1. Comparison Shopping is Necessary

Credit card processing deals tend to vary considerably. However, the only way to make sure you have the best deal is by comparison shopping. Get in touch with at least five different credit card companies and compare the rates along with features and deals. Make sure you also check the fees and penalties applicable on the account.

2. Understand Costs

Costs like interchange and assessments are critically important while evaluating credit card companies. Interchange refers to the fee charged by card issuing banks to processing banks for the acceptance of card transactions. These charges are the same for all processor banks. Visa and MasterCard charge assessment fees and they are the same for all processor banks. These fees influence how much you pay the company.

Big businesses save money by paying credit card fees through an interchange pass-through pricing model. Even if you do not understand the pricing, rate and fee structure, you can still save money by asking for the interchange pass-through pricing model.

Apart from these costs, you will be paying monthly fees like monthly statement payment fee, monthly minimum fees, gateway monthly payments, transaction fees, etc. These rates tend to vary and the only way to find out exact rates is by comparing multiple service providers.

3. To Contract or Not to Contract

Entering into a contract with a merchant processing services provider is a good way to ensure stability and regular sales. Companies may also urge you to get a contract; but, it is not really necessary. You can cancel your contract at any time and some processors are also willing to waive the contract for your business.

4. Equipment Availability

Merchant services companies are willing to offer small businesses a range of equipment to swipe debit cards and credit cards such as POS terminals, PIN pads, wireless terminals, tablets and mobiles with card reader software, etc. However, all providers offer equipment purchase or rental options. For small business owners, this can really help save money and it also allows them to return the equipment in case they decide to switch companies or go out of business.

Apart from real time merchant services, it is a good idea to incorporate online small business credit card processing services on the company website. For small businesses, this increases the sales they get without the need for a merchant account.

Third party providers now offer many more innovative and interesting credit card payment options and solutions for new businesses to increase their exposure and sway customers into buying products.

Credit Card Processing – How Does it Work

While the process of purchasing goods and services by swiping your credit card might seem very simple, there is actually a rather complex process at work behind this seemingly easy transaction.

We have explained below, in 6 easy steps, how credit card processing works.

1. The Purchase 

When you like a product or service, you purchase it with your credit / debit card, instead of cash. This is the ‘point of sale’ or POS, where your credit card details are keyed in. The POS could be the actual electronic card reader in a retail store, or it could be the merchant’s website through which you make your payment.

2. Data Transmission

Once the card is swiped in the reader, or its details keyed into a mobile device, or as in the case of an e-commerce portal, the credit card details keyed in by the customer – the details are recorded and transmitted through a ‘payment gateway’ application.

The payment gateway facilitates the transfer of sensitive card information between the POS (website, mobile device, retail store card reader) and the merchant’s acquiring bank, where the merchant/shop owner has his business account. Often, a third-party, called the payment processor, which functions on behalf of the merchant bank, collects these details. 

3. Payment Processor Screenings

Payment processors, usually a third-party employed by a merchant acquiring bank, screen and forward the card and transaction details to the merchant bank, the card association for verification and finally to the customer’s bank, which issued the credit card. Additionally, the payment processor also looks into aspects like the card’s country of origin, its former transactions and ensures anti-fraud measures to authenticate the transaction. 

4. Approval

This is a crucial step which involves the card association (Visa, MasterCard etc.), the merchant acquiring bank and the customer’s issuing bank. These institutions screen through every detail about the transaction. Though done through software applications, these processes determine the authenticity of the card, its expiry date, the card-holder’s details and the available balance in the customer’s account. 

Once the security screening and verifications are done by these institutions, the approval is sent back electronically to the payment processor. The payment processor transmits the approval once again via the payment gateway and back to the merchant. In case a transaction is not approved, the merchant receives an alert.

5. Completion of Transaction

This is the final stage where the transaction is all set to be completed. The merchant extracts copies of the receipt from the card reader, one for the customer, and the other as a copy for the merchant bank, which requires the customer’s signature. 

In case of a mobile or e-commerce website, the customer receives a message alert from the issuing bank, on the amount of money debited from the account, and the date and venue of the purchase.

6. Submitting a Closure

Closures are statements of all the credit card transactions made in a single day, which are forwarded by the merchant to the merchant acquiring bank. The acquiring bank then collects the funds from the respective issuing banks and deposits that amount into the merchant’s business account. This typically takes 48 hours.

Advanced computing technologies, employed for credit card processing today, allow the above complex procedures to be completed within a few seconds.