What is credit card processing?
Credit card processing describes the methods used to complete a credit card transaction. While most of us use credit cards on a daily basis, many of us don't understand how the system works. This article will answer your questions about processing credit card and debit card payments.
7 Amazing Ways Credit Card Processing Helps Your Business
What Is Credit Card Processing?
Credit cards such as Diners Club and American Express first started appearing in the 1950s. Today people use credit cards to pay for everything from meals and groceries to vacations and automobiles. It's hard to think of any business, virtual or brick and mortar, that doesn't accept payments using credit cards.
One of the things that make credit cards so popular, is that they're so convenient. Using credit cards eliminates a lot of the risks of carrying cash. And unlike cash, credit cards can be used to make purchases online, by phone, by mail, or with an app.
For a lot of us, using a credit card is like driving a car. We can drive just fine, but a lot of us don't have a clue as to how the automobile works. Likewise, we use credits cards all the time, but most don't know exactly how the payments are processed.
Credit card processing is the sequence of operations required to complete a credit card transaction. The sequence starts with the consumer initiating the transaction and the merchant collecting their credit card information. It ends with the settlement, the official transfer of funds from the consumer to a merchant.
In this article, we're going to take a look at how credit card processing works. We're going to discuss the most important things business owners should know when it comes to credit card processing. Although it may seem like a minor detail, credit card payment processing is an integral part of any business.
Businesses Depend on Credit Card Processing: Today, you can't run a successful business without being able to process credit card payments.
One reason why credit cards are so popular is that they are so easy to use and are accepted in so many places.
Understanding the how and whys of credit card processing is vital for business owners.
Almost everyone uses credit cards, yet few understand credit card processing - how the money gets from a customer's account into the merchant's account.
How Credit Card Processing Works
The credit card payment process begins when a customer decides to make a transaction using a credit card. They provide the merchant with their credit card information as payment for the transaction. To make things easy, a business owner will provide customers with many options when it comes to making credit card payments.
The merchant can accept and collect credit card payments in two ways- card-present or card-not-present. Card-present transactions are purchases using a card reader or other payment gateway pos systems. Online payments, payments over the phone, or payments by mail are card-not-present transactions.
The merchant sends the payment information to the credit card processor. The credit card processer sends the information to the card network. The card network then relays the information to the customer's credit card company.
The credit card company will verify that the cardholder has sufficient funds or credit to complete the transaction. Once the information has been verified the credit card company will either approve or decline the transaction. This decision will be relayed to the merchant via the credit card processor.
Settlement is the final step of the process. Settlement occurs when the funds are officially transferred from the customer's account to the merchant's account. While transactions take seconds to complete, settlement can take several business days, depending on the card network.
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Why Credit Card Processing Matters
Can you think of any successful company that doesn't accept credit card payments? Credit card processing matters because it is the backbone of your business. Credit transactions are critical to remaining competitive, whether you run an online store or a brick-and-mortar small business.
More and more transactions are being conducted using credit and debit cards. There were 45 billion credit card transactions in 2019, accounting for almost $4 trillion in sales. It's now virtually impossible to run a successful business without accepting credit card payments.
Let's face it, credit cards are here to stay. Nowadays, the most important decision for a business isn't whether to accept credit cards or not. It's more like which credit card processor is right for their business.
The 7 Amazing Ways Credit Card Processing Can Boost Your Business
Credit cards provide many benefits to customers. But what are the advantages to a business? Here are seven amazing ways credit card processing can help your business-
A lot of people use credit cards for the majority of their purchases, especially mobile credit cards. Credit cards increase sales by expanding your potential customer base. Retail and restaurant sales have been helped by customers being able to use credit cards to make purchases.
Legitimize Your Business
Visa and Mastercard are two of the biggest brands in the world. Just having a Visa or Mastercard sign in a window can be enough to convince a customer to stop in. That's because customers are more likely to trust an establishment associated with these two brands.
Handling cash is a hassle. So is processing checks. Credit cards greatly reduce the amount of time a business spends processing a transaction as compared to cash or check.
Helps You Stay Competitive
Almost all businesses accept credit card transactions. There's a good reason for that. A customer who wants to make a purchase might go to a competitor if they can't pay by card.
Credit Card Processing Doesn't Cost that Much
You can't make money without spending money. While it's true credit card transaction fees reduce profits, the increased business makes it worth the fees. It's important to consider transaction fees and other charges when selecting a credit card processor.
Cash transactions come with a lot of risks. If cash is lost or stolen, it usually can't be replaced. Credit cards also eliminate the troubles of dealing with bad checks.
Improve Your Business' Cash Flow
Unlike checks, credit card transactions settle fairly quickly; usually no more than a few business days. This increases the amount of cash your business has on hand. You also don't have to worry about problems involving check processing, billing, collection, etc.
Are There Disadvantages to Credit Card Processing?
While there are many advantages to credit card processing for a business, there are also some disadvantages.
Third party credit card processors charge business fees for using their service. Credit card processing fees can include-
- Transaction fees
- Monthly Fees
- Interchange fees
- Termination fee
Security is another concern. Business owners aren't as protected against fraudulent purchases as cardholders. Accepting credit sometimes comes with a cost.
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Which Credit Card Processing System is Right for Your Business?
Large and small businesses alike are always looking for the right credit card payment processor for their operation. But figuring out which credit card processing system is the best one for your needs can be confusing. Here are a few of the factors that go into choosing the best credit card processing company for your business-
Fees and costs
A credit card processing company charges fees and costs for merchant services. These can include everything from a per-transaction fee to early termination fees. It's important to include these charges as part of your pricing model.
The quality of customer service and support provided by a credit card processing company is another important consideration. Good customer support is vital when you experience problems with pos software or card readers.
The setup and integration process should go as quickly and smoothly as possible. Problems with a payment processor can be detrimental to business.
Security is one of the most important things to consider when choosing a credit card payment processor service. The processing company should have the proper SSL certificates and be in PCI compliance.
Accepted payment types
The credit card processor should be able to handle a wide range of payment types. In addition to credit and debit cards, they should also be able to process prepaid cards and gift cards.
What is the Future of Credit Card Processing?
The credit card processing industry has seen many changes in recent years. The popularity of credit cards has transformed the industry in ways that would have been unimaginable just a few years ago. What's the future of credit card processing and what does it mean for your business?
Increasing speed and efficiency is the main goal of a number of leading credit card processing companies. Better security is another issue facing the credit card payment processing industry. Recent technological developments have made credit card transactions more secure.
One thing's for sure- it looks like credit card use is going to continue to increase. As the use increases, the need for dependable, secure credit card processing systems will grow as well. Merchants need to be prepared to react to changes in credit card use.
Will credit cards eventually go the way of cash, checks, and money orders? The use of digital wallet mobile payment apps like Apple Pay is becoming more prevalent. In response, merchants are adopting more mobile point-of-sale (mPOS) solutions.
We hope this article was helpful. Credit card processing is a vital yet little understood area of business. The more you know, the more informed your decisions will be when you choose a credit card processing service for your business.