Credit Card Processing
Scaling your business requires the use of the right equipment. Most notably, businesses looking to grow to require a scalable payment processing method.
If you need an effective payment processing method to grow your business, consider investing in credit card processing. This powerful payment processing method boosts your business’s revenue and offers a solid return on investment.
Below, we’ll take a detailed look at credit card processing, as well as some of the benefits it could bring to your business. Keep this information in mind as you look to find a payment processor right for you.
What Is Credit Card Processing?
Credit card processing refers to the methods in which merchants accept and receive funds from customers in exchange for a good or service. Payments are made through either credit or debit cards.
Multiple parties are involved in the credit card process, including:
Merchants are the store and business owners who look to profit from purchase. Some merchants require specialized equipment to be able to able to accept customers’ credit and debit card payments.
Customers initiate purchases and transactions by buying certain goods or services. These transactions are paid through their debit or credit cards.
The card network refers to the credit or debit card company—such as First Data or TSYS. The card Network helps in the authorization process to verify the card’s information.
The issuing bank refers to the bank that either approves or declines a transaction on behalf of the customer. There may be several reasons why an issuing bank declines a transaction—such as insufficient funds in the customers’ account or when the transaction is believed to be fraudulent.
Ultimately, credit card processing proves an integral part of almost every retailer’s success.
Benefits of Credit Card Processing
This is true because of the several powerful benefits that credit card processing can bring to a business. If you’re on the fence about getting a credit card processor for your business, consider the following benefits.
By increasing your payment processing options, you’ll be able to make more sales. Those looking to expand their business into the online realm, in particular, require a proper credit card processor.
The truth is that a growing number of people no longer carries cash. By not being equipped to handle credit and debit card payments, a business stands at a significant risk of losing a great number of customers.
By upgrading your payment processing infrastructure, you can service a wider variety of customers, boosting your bottom dollar.
Credit and debit card payments are much easier for customers to make. Not having to carry cash—or count it at the register—makes card payments an attractive option for many consumers.
For this reason, many prefer to shop at stores that accept cards—even if they are carrying cash. By having credit card processing, you’ll streamline the transaction process and make it easier for customers to pay.
As mentioned, you’ll never be able to get any type of transactions started online without some form of online payment processing.
The most effective and widely-used form of online payments come from credit and debit card transactions. By incorporating this functionality into your site, you can start appealing to a wider base of customers. Additionally, because you’ll be equipped to handle payments from people no matter their location, you should be able to expand your customer base.
In this way, credit card processing can generate a significant return on investment and help your business grow.
Finally, by having the right credit card processing systems, you’ll be able to take your business on the go. Have a festival or a pop-up event? Not a problem! Mobile credit card processing goes with you to help you serve your customers. Trade Shows, Seminars, Swap Meets, In-Home Sales, any place you are out of your office.
With mobile credit card processing, you’ll be able to accept card payments no matter your location. This brings the added functionality you need to maximize your on-the-go experience.
But what makes a good credit card processor? How do you know which one is right for your business? Consider the following characteristics below.
Elements of a Good Credit Card Processor
When choosing a credit card processor, you’ll want to make sure that it’s reliable. After all, your credit card processor can have significant effects on your business.
If you’re looking for a credit card processor but don’t know where to start, keep the following information in mind.
- Better Business Bureau Rating and time in business.
Part of what makes credit card processing so appealing is that it’s fast. If you wind up with a slow credit card processor, you could be putting off customers and harming your brand image.
And that’s not the only downside to having a slow credit card processor. You may find that you’ve chosen one that moves at a snail’s pace transferring transaction funds into your business’s bank account.
For this reason, make sure that you have a solid understanding of each credit card processor’s transfer speeds before selecting them.
Secure Payment Gateway
Perhaps most importantly, you’re going to need a credit card processor that’s secure. When accepting credit and debit card information, you’re actually transferring—and in some cases, storing—sensitive financial information.
Unfortunately, hackers and third-party thieves have no problem trying to loot this information from your business. Luckily, many credit card processors will store and manage this information for you. Those running an online website, however, may choose to become PCI compliant to store their own information.
Whatever system you’re using, however, be sure that you’ve got a credit card processor who keeps the information secure. You’ll need a professional service that keeps the data highly-encrypted. Make sure that you’re not choosing a company that cuts corners or has a bad history in this regard. Losing your financial information—or that of your customers—can land you in serious legal or even financial trouble.
Fortunately, several powerful options with great security currently exist on the market. Make this your first consideration when shopping for the credit card processor right for you.
Is It Affordable
Finally, a quality credit card processor is one that meets your budgetary needs. Carefully examine the fees required per transaction to find the one suitable for your business’s needs.
To better understand what fees may be required, consider the following steps to credit card processing.
Steps to Credit Card Processing
When a customer makes a transaction, a relatively simple and incredibly-fast process takes place. Depending on the nature of the transaction, there may be slight variations in how each payment is processed, but they’ll generally follow an established formula. As we’ll see, variations typically come in the form of chargebacks, refunds, and void payments when a transaction is believed to have been made in error.
The first step in the process occurs when a customer initiates a transaction. Whether they’re shopping online or in the store, this step occurs when they enter their credit or debit card information.
During this step, the merchant will need to collect the following information from clients: card number, security CVV2 code, and the cards expiration date.
Once this is done, the information will be sent to the merchant’s payment gateway provider. From there, the payment gateway will act as an intermediary and pass the information through encrypted channels to the card network—think First Data or TSYS, etc.
Here, the card network will do a short verification process of its own before passing it to the cardholder’s bank. Ultimately, the bank will determine which transactions are approved and which are declined.
The issuing bank will pass its decision along as a code through encrypted channels back to the payment gateway. If approved, the transaction will go through, and the issuing bank will release funds into the merchant’s bank account—likely the following day. If not, the merchant and the customer will receive a message that the transaction has been declined.
As you may know, this entire process happens within a matter of seconds to provide real-time feedback to all parties involved.
Additionally, keep in mind that when a transaction is approved, funds transfer from the issuing bank to the merchant’s bank directly. In this case, there will be no go-between.
For merchants and customers, this process is typically the most common—and the most convenient. However, there are some other alternatives of which you should be aware of.
Pre-authorization works in a very similar manner except that funds are not immediately captured and released. Though real-time verification methods are still in place, merchants will not have immediate access to them. Instead, they will be frozen for a period of 7-10 days until the merchant completes a capture request to have the funds released to their account.
Pre-authorization isn’t quite as common as typical sales, but it works well for merchants in a variety of industries. Typically, those who benefit from pre-authorization are merchants working in fields such as hotels and gas stations.
To better understand, consider the example of a hotelier who is making a transaction with a customer. The customer asks for a five-day reservation—a pretty high bill. Instead of directly charging him, the hotelier uses a system in which the cost of a five-day stay is pre-approved and the funds set aside. This will ensure that the merchant is not out of his funds should the customer ultimately prove unable to pay.
This common method is also used by gas stations, where a pre-authorized amount is typically set rather high. In these cases, if a merchant pre-approves an amount larger than what the customer actually spends, the leftover funds will be released back into the cardholder’s bank account.
Importantly, for merchants to gain access to pre-approved funds, they must submit a capture request with the cardholder’s bank within a period of seven to ten days. If they fail to do so, the total cost of the funds will be refunded back to the cardholder.
Capture is the process by which merchants gain access to pre-authorized funds. Because of this, in order for a merchant to benefit from pre-authorization, they’ll need to promptly perform capture requests.
Of note, it’s important to remember that capture requests can be made up to thirty days following the original pre-authorization. However, the bank will not hold the pre-authorized amount from the cardholder’s funds longer than ten days—seven in many cases. For this reason, merchants who promptly fail to put in a capture request risk the customer not having enough funds in the account to cover the costs.
Additionally, merchants should remember that the final capture amount cannot exceed the original pre-authorization amount. Instead, it should be less than or equal to it.
Voided transactions refer to those in which the merchant asks the card network to cancel the authorization process. Importantly, voided transactions don’t incur fees for either party; however, they must be caught in time. If the funds have already been settled, the merchant will have to perform a costly refund instead.
Refunds transfer a certain transaction amount back to the customer from the merchant’s account or from batches already in the card network.
This may confuse some customers, as it can take several days for the refund to show on their card statement. However, it’s important for merchants to remember that these transactions are processed in real time, giving customers access to their funds rather quickly.
The Bottom Line
Credit card processing proves to be a powerful way to grow your business and expand your customer base. Merchants looking to grow can use credit card processing to make forays into the online and mobile markets.
With that in mind, however, merchants must note that not all credit card processors are equal. For that reason, merchants should take the time to find the credit card processor right for their business.
By keeping the above guidelines in mind, you can start to find the processor right for you. In doing so, you can optimize your payment processing to meet a wide variety of consumer and business needs.
Ultimately, this added functionality gives you the power and flexibility you need to scale your business and boost your revenue.