Credit card processors are responsible for managing the credit card submission, authorization, capturing, and settlement system needed in order to allow customers to use their card to make electronic payments for goods and services. As such, these processing companies handle every stage of the credit card transaction process, facilitating transactions between the financial accounts of businesses and customers.
With years of experience under their belt and the implementation of the latest security technologies, credit card processing companies like Snagpay are able to offer safe, secure, and reliable transactions, many of which occur in real-time. Although business owners must pay certain charges and fees for this service, it is an essential part of doing business in today’s modern business landscape.
Significance of Credit Card Processing Companies
In order to compete in today’s demanding business environment, businesses must be able to process credit cards. With the use of a respected processing service, businesses are able to accept all forms of payment and increase their sales. However, businesses must be wary of fees and charges, because they can easily eat into profits. Therefore, businesses must perform their due diligence and compare the services, fees, and charges of various credit card processing providers.
How Credit Card Processing Functions
Businesses typically establish a merchant account with a credit card processing provider, which can either be a third-party service or a bank. The bank or third-party company provides all of the services needed to electronically process credit transactions from numerous credit card providers. Each business is provided with a credit card processing machine that is linked to the computer network of the processing company via Internet or phone line.
When a transaction takes place, a customer can swipe their card through the credit card reader, the information can be entered in manually, or it can be phoned in. The amount of the transaction, credit card number, and the identification number of the business is automatically transmitted to the processing company’s computer.
The data is then transmitted to the bank or credit card company that issued the card, which verifies the account and determines whether or not there is enough credit available to process the transaction. The business owner then receives an authorization that denies or approves the transaction. At the close of each business day, the business owner captures the funds or batch of credit card transactions that were approved during the business day. This is known as the “settlement.”
In most cases, the funds are deposited into a business account within two to three days. However, the merchant account provider charges are automatically deducted from the deposited amount. At the end of each month, business owners receive a statement from the credit card processor that details the transactions and fees for the entire month.
Factors to Consider
The fees assessed by credit card processors typically consist of transaction charges, discount fees, and monthly fees. For e-commerce businesses or small businesses with phone or mail orders, the discount fee is normally two to three percent. Brick and mortar businesses that receive the bulk of their credit card sales through swipe transactions often enjoy lower discount fees.
Transaction fees of 20 to 30 cents are usually assessed on each sale. In terms of monthly charges, business owners must typically pay a customer service fee, a monthly statement charge, a minimum monthly charge, and network access fees. If business owners decide to lease their credit card processing equipment, there are fees for using the machine and software as well. Business owners should be wary of processors that require them to open a bank account with the same bank used by the processor, because this is not required by most respected processing companies.
Banks are usually more expensive than third-party processors, and since numerous fees are associated with credit card processing, it’s imperative that business owners read the fine print and understand all of the terms and fees prior to selecting a credit card processor. Since certain companies charge business owners that decide to change processors and non-cancellation lease provisions often exist for leased processing equipment, due diligence is all the more important. Business owners should always refer to the information contained within the service agreement in order to make the best possible business decision.