Credit card processing is the act of accepting credit cards as payment for goods or services. Credit card processors are businesses that provide the technology and infrastructure necessary to authorize, capture, route, and settle credit card payments. When a customer pays with a credit card, the credit card processor will verify that the card is valid, obtain authorization from the card issuer and capture the funds. The processor then routes the transaction to the acquiring bank (also known as the acquirer) and settles the funds with the merchant.
There are four main players in the credit card processing industry:
1. Credit card issuers – These are the banks or financial institutions that issue credit cards to consumers.
2. Credit card networks – These are the organizations that manage the credit card payment system and set the rules for card issuers, acquirers, and merchants. The major credit card networks are Visa, Mastercard, Discover, and American Express.
3. Acquiring banks – These are the banks or financial institutions that provide merchants with the ability to accept credit card payments.
4. Payment processors – These are the businesses that provide the technology and infrastructure necessary to authorize, capture, route, and settle credit card payments.
Payment processors typically work with acquiring banks to provide merchants with credit card processing services. When a customer pays with a credit card, the payment processor will verify that the card is valid, obtain authorization from the card issuer and capture the funds. The processor then routes the transaction to the acquiring bank and settles the funds with the merchant.
Credit card processing fees are typically charged as a percentage of the total transaction amount, plus a flat fee per transaction. For example, a credit card processor may charge 2.9% + $0.30 per transaction. The credit card processing fee is typically split between the acquirer and the payment processor.
There are several factors that can affect the cost of credit card processing, including:
1. The type of credit card – Credit cards are classified as either business or consumer cards. Business cards typically have higher processing fees than consumer cards.
2. The type of transaction – Credit card processors typically charge higher fees for transactions that are classified as “card-not-present” transactions. These are transactions where the cardholder is not present, such as online or over-the-phone transactions.
3. The credit card network – Credit card processors typically charge higher fees for transactions that are processed on the Visa or Mastercard network.
4. The size of the transaction – Credit card processors typically charge higher fees for transactions over a certain amount. For example, a processor may charge 3.5% + $0.30 per transaction for transactions up to $100 and 2.9% + $0.30 per transaction for transactions over $100.
5. The merchant category code – Merchants are assigned a merchant category code (MCC) by the credit card issuer. This code is used to classify the type of business the merchant operates. merchants that are classified as high-risk businesses, such as gambling or adult entertainment, typically have higher credit card processing fees.
The best way to reduce the cost of credit card processing is to shop around and compare rates from different processors. You can also Negotiate with your processor to get a lower rate.
