Have you ever wondered what's involved in credit card processing? Every credit card transaction involves four parties: The customer making the purchase, the merchant receiving payment for the purchase, the bank the merchant processor uses for credit card processing services (acquiring bank), the bank that issued the customer's credit card (issuing bank).
Acquiring banks (also called merchant banks) contract with merchants to operate accounts that allow the merchants to accept credit card payments. Acquiring banks deposit funds for credit card purchases into merchants' accounts. They also furnish merchants with credit card processing software and equipment such as a merchant processor, credit card reader and terminal, as well as providing customer service, promotional materials and other credit card processing services.
Any merchant who wishes to accept credit card payments must have a merchant processor account. A merchant account is an unsecured line of credit that pays a merchant for customer purchases. The payment is actually a loan to the merchant's account from that merchant's acquiring bank. In other words, the acquiring bank loans money to the merchant to cover the cost of customers' credit card transactions.
After a credit card transaction is complete, the merchant will have less money than the original transaction amount because both the issuing bank and the acquiring bank will charge the merchant fees for their services. These fees include a percentage of each transaction, and the higher the transaction amount, the higher the fee. The merchant may also be charged fixed fees for each transaction by the issuing bank and the acquiring bank.
If you want to set up a merchant account for credit card processing, you probably wonder about the credit card fees you will be charged. The most important determinant of how high your fees will be is the type of business you are in. Certain businesses are more likely than others to suffer payment disputes and chargebacks, so their transactions are considered riskier by issuing and acquiring banks. Businesses with these riskier transactions are therefore charged higher fees to offset the risk of chargebacks.
Chargebacks are what happens when a customer successfully disputes a credit card fees transaction with your business. The safest transactions, as far as the issuing and acquiring banks are concerned, take place when the cardholder swipes his or her own card in the credit card reader and signs the receipt to pay for goods that are inexpensive and not likely to generate complaints. Restaurants, gas stations and car rental agencies all fall into this category, and because their chargeback risk is low, they pay less in fees for credit card processing transactions.
The risk of a chargeback is highest when transactions are completed via the Internet or by phone. The risk is even higher if the transactions are expensive, involve shipping and the business is one that is subject to complaints. The bottom line is that when a merchant applies for credit card processing services, the business the merchant is engaged in figures significantly in the fees that the merchant will be charged.
Any merchant, whether doing business in a physical location like a retail store, a virtual location like an online website, or by phone or mail order needs credit card processing services if they wish to serve all potential customers and remain competitive.
Although you, as a merchant, will pay a certain price for credit card processing services, the bottom line is that you can't really be successful in your business without it. However, due to the variability in pricing for credit card processing services, you can shop around for the best deal. Just be sure that any quotes you receive include all the rates and fees you will be charged.
Many top credit card processing companies sell Clover’s point-of-sale systems. But did you know that Clover itself offers credit card processing through parent company Fiserv? That’s right. While Clover is primarily known for its POS hardware, it also offers a range of other services including payment processing, gift cards, invoicing and payroll solution, and working capital financing.
That said, if you’re looking for a payment processor that offers Clover devices, you should compare Clover to the many other payment processing companies that are authorized to resell Clover products. Clover’s flat-rate processing may seem convenient, but it looks less attractive when you consider the hundreds of poor reviews it has received from small business owners that have used its service.
