What is credit card processing?
Businesses rely on credit card processors to handle the details of accepting credit and debit cards, whether in person, over the phone, or online. Dependent on a third party to perform such a crucial service can make anyone anxious. This quick primer seeks to relieve that anxiety by outlining the basics of credit card processing.
How credit card processing works
First, a customer presents their credit card info for payment. This presentation can take many forms:
- in-store via a swiped magnetic stripe card;
- in-store via a dipped EMV chip card;
- in-store via a tapped NFC-enabled card;
- from your website or app via a payment gateway;
- via a mobile point of sale;
- via a virtual terminal
The payment information is then sent to the processor, who communicates with the customer’s bank via the appropriate card networks (such as Visa or Mastercard).
The customer’s bank approves or denies the transaction. Approval is dependent on detailed verification including card number validity, sufficient available funds, and other factors.
You’ll then send batches of approved transactions for settlement; typically at the end of each business day. At that point, your customers’ accounts will be charged and the transaction amounts will be deposited into your merchant bank account (less processing, interchange and other fees).
Credit Card Processing: Quality Matters
Credit card processing services vary in quality. When evaluating potential companies, ask tough questions about these four critical areas where credit card processing quality matters most to your business:
- Transaction speed and reliability
- Strong uptime record
- Fair and transparent rate structure
- Access to helpful customer support
Transaction speed and reliability
Your customers love to pay with debit and credit cards, but they take the speed of such payments for granted. Even short delays can cause big annoyances. You’ll want to choose a processor capable of processing a high volume of transactions safely, accurately, and quickly.
What counts as “fast?” In the early 1990s, merchants connected to payments network via dial-up which took up to a minute per transaction. A decade later when processing via broadband became the new standard, a tech savvy processor could boast about delivering two-second transactions. This is the speed that modern customers have come to expect.
The introduction of EMV chip cards has slowed down transactions down, since the card must be dipped and left in the terminal until the approval clears. Customers seem willing to exchange better fraud and identity protection for slightly longer transaction times, and the payments industry is working to reduce processing time further.
The right credit card processor can help you keep things moving by accepting mobile transactions on your phone or tablet. NFC, or Near Field Communication, allows you to accept payment merely from contact, where the customer taps their phone to the terminal to complete a payment.
Even more important is the ability to take process credit cards online. eCommerce markets continues to explode in size, with even the smallest businesses embracing online sales. Of course, you’ll need a credit card processor that will allow your business to seamlessly accept card payments in-store, online, or wherever you do business.
Strong uptime record
Simply put, outages are bad for business. A credit card processing outage means your business as good as shut down. It’s not just the downtime itself that hurts, as customers turned away during an outage may view your business as untrustworthy and/or inconvenient. That’s not the brand association small business owners are looking for.
Credit card processing outages are rare, but all complicated interdependent systems are vulnerable to downtime. Outages can occur in multiple places—such as the card brands and bank networks—that processors don’t have control over. Reliable processors like Vantiv, now Worldpay, have solutions to help merchants stay operational during a network outage, as well as redundant servers to reduce their own risk of going down.
When you’re doing your research, ask about a credit card processor’s uptime history, the steps they’ve taken to minimize downtime, and backup plans in the event of downtime.
Fair and transparent rate structure
The rates and fees you’ll pay depend on many factors, starting with the interchange category applicable to your business. Though payment processors charge their own rates and fees on top of interchange, the cost of interchange is set by the card brands and is the same for all processors. Interchange pricing varies based on the risk factors of different types of businesses.
This is particularly relevant if most of your transactions qualify as “small tickets” or “convenience purchases” according to the card brands and their interchange models. Quick service restaurants, convenience stores, and movie theaters are examples of businesses that may benefit from being placed on an interchange level that will charge a high-volume, low-ticket business more fairly.
Make sure you’re quoted and charged appropriately by your processor if your business qualifies for a lower rate structure.
Customer support can make or break your day
Dealing with technology and managing complex systems is part of modern life. As a business owner, you know that troubleshooting and maintenance is part of every critical service. However, the way that service providers respond to those difficulties can make a big difference to your sanity and your bottom line.
When things go wrong, you need to be able to count on support from real people who know how payments work, know what your terminal or POS system’s common failures are, and how to resolve them. You need to be able to speak to someone right away when you call—whether it’s in the middle of the night, or on a busy holiday.
Not all credit card processors offer 24/7 live customer support. If you can’t be left in the lurch, make sure that any processing company you consider offers the level of service your business demands.
Reputable payment processors keep track of their call waiting times and resolution scores, so be sure to ask about them.
Now that you have a better idea of what credit card processing is all about, dig deeper into the articles that follow to learn more. If you have question, we're here to help. Let us know a little bit about your business and one of our payments experts will get in touch to help get you started.