A credit card has a pre-approved credit which can be used for purchasing things on the spot and clearing your credit card bill later. Credit cards have a plastic body and small-sized magnetic chip which is authorized by the bank.
Credit cards are called charge cards as well because you can buy goods on credit. The concept of using these types of cards was first described in 1887 in a novel by Edward Bellamy.
What is credit card processing?
Credit card processing refers to the series of operations to complete payments made with a credit card in person, online, over a phone, or by email.
Who is involved in credit card processing?
Cardholder – A consumer or a person who has a credit card or a person who is making a purchase.
Merchant – The store or a person selling goods or services to the consumers.
Merchant bank – Also known as the acquiring bank. This is the bank used by merchants to hold their financial funds and receive money from transactions. It can facilitate the merchants to accept card payments. A merchant bank is also referred to as a credit card processor.
Payment processor – The Company mainly responsible for card payment.
Issuing bank – Issuing bank is a bank that provides the customer their credit cards.
Card network – A card network’s job is to make transactions across retailers and credit card companies easier. For example American Express, Visa, Mastercard or Discover.
The main function of the card network is to set interchange and assessment fees.
Payment gateway: The main purpose of payment gateway is that it connects merchants to the consumer by accepting their purchases. (1)
Steps of credit card processing
Credit card processing is divided into eight simple steps, which are given below:
- Making the purchase
- Entering the transaction
- Transmitting the data
- Authorizing the data
- Responding to processor and merchant
- Completing the transaction
- Submitting a batch closure
- Depositing of the funds
Making a purchase
First, the customer searches for a product that he or she wants to purchase and then decides to purchase it. Customers can use a credit card for purchasing an item in a store or through an online payment gateway, by phone, or by email.
Entering a transaction
The credit card is swiped in a secure credit card reader or the details of the card and transaction details can be entered manually using a virtual terminal.
Transmitting the data
Card issuers use a variety of methods to encrypt the credit card, or a secure payment gateway is connected to a credit card network.
Authorizing the data
When data is entered, the credit card consumers can accept or decline the transaction which is based on the amount of money in your account, the validity of the credit card, and the amount of the transaction.
Responding to processor and merchant
If the transaction is approved by the company which sells goods, the consumer gets an authorized response.
Completing the transaction
The merchant completes the transaction by giving a receipt to the customer for their purchase. For online purchases the merchant ships the purchase to consumers.
Submitting a batch closure
The merchant completes the credit card payment process with the help of batch closure. This step completes the transaction process for that time.
Depositing of funds
The acquiring bank then deposits the amount of transaction in merchants saving or checking bank.
Average credit card processing fee
Credit card processing fee depends upon a consumer purchase or a card brand.
Here are the average credit cards processing fees for the four major credit cards network:
- Visa: 1.4% – 2.5%
- Mastercard: 1.5% – 2.6%
- American express: 2.3% – 2.5%
- Discover: 1.55% – 2.5%
Credit card processing varies in different credit card networks. The above fee shows an average credit card processing fee across different credit card networks. Credit card processing fees vary on the situation and the method of purchasing you used.
Other costs and fees
Accepting credit card payments comes with extra costs to consider. In many other cases, a monthly fee is charged by the service provider.
Ways to reduce credit card processing fee
While credit card processing fee is necessary but you can also reduce credit card processing fees so that you keep more profit.
- Encourage debit card payments
- Set a credit card minimum purchase amount so this helps you out for not paying a higher transaction fee for small purchases.
- For online purchasing use credit card fraud detection tools such as CVV or AVS match.
- You can pass the credit card processing fee to your customers by a way of surcharge.
- Offer a cash discount to encourage cash payments.
Benefits of credit card processing
Pros of credit card processing are given below:
- Reduced human error
- Increased in cash flow
- Lowered labor costs
- Stronger payment security code
- Streamline operation and save time
Reduced human error: Manually entering data is time consuming and also prone to human error. The error includes duplicate data like wrong entry, and for the correction, it consumes a lot of time to locate and correct them.
Increase in cash flow: A credit card processing solution that integrates with enterprise resource planning provides the exact amount of money left, which vendors need to pay.
Lower labor cost: No labor is hired in the processing of credit card. So users save money by not hiring a group of persons for the work.
Stronger payment security code: Customer payments details will remain secure when they use only verified payment methods. Tokenization replaces customer card statistics with a golden number referred to as a token.
A token is stored in place of a real credit score card number for bank authorization. Through this, consumer data is safe and it also boosts consumer confidence.
Streamline operation and save time: Streamline operation works efficiently and reduces the amount of cost and also saves time. (2)
