Everything You Need to Know About Credit Card Processing

If you've ever been to a store and used a credit or debit card to make a purchase, you've used credit card processing. Credit card processing is the behind-the-scenes work that happens when you use your card to buy something.

When you swipe your card, the credit card processor verifies that the funds are available and then sends the money to the merchant. The whole process happens in just a few seconds and is almost invisible to the consumer.

Credit card processors typically charge a fee for their services. This fee is usually a percentage of the total transaction, plus a small per-transaction fee. For example, if you make a purchase for $100, the processor may charge a 2.9% fee, plus a $0.30 per-transaction fee. That comes to a total of $3.20 in fees.

The credit card processing industry is highly regulated. The two main governing bodies are the Payment Card Industry (PCI) and the Credit Card Accountability Responsibility and Disclosure Act (CARD Act).

The PCI is a group of major credit card companies (Visa, Mastercard, American Express, Discover) that sets standards for credit card processors. The CARD Act is a US law that regulates the fees and disclosures related to credit card processing.

There are three main types of credit card processors:

1. Direct processors: These are companies that have a direct relationship with the credit card companies. They include companies like Visa, Mastercard, and Discover.

2. Indirect processors: These are companies that don't have a direct relationship with the credit card companies. They typically work with one or more direct processors.

3. Merchant service providers: These are companies that provide credit card processing services to businesses. They typically work with one or more indirect processors.

Credit card processors can be divided into two categories: on-site and off-site processors. On-site processors are physically connected to the credit card terminal. Off-site processors are not physically connected to the credit card terminal.

Instead, they process transactions through the internet or a phone line.

On-site processors are typically used by businesses that have a physical location, such as a retail store. Off-site processors are typically used by businesses that don't have a physical location, such as an online store.

Credit card processing can be complex, but it doesn't have to be. By understanding the basics, you can find the right processor for your business and avoid hidden fees.

Benefits of Credit Card Processing

There are many benefits of credit card processing, including:

1. Increased sales: Credit card processing can help you increase sales by making it easier for customers to pay.

2. Improved cash flow: Credit card processing can improve your cash flow by providing you with immediate payment for your sales.

3. Reduced fraud: Credit card processing can help reduce fraud by allowing you to verify the customer's identity and track their purchase history.

4. Greater security: Credit card processing can provide greater security for your business by encrypting sensitive information and storing it in a secure database.

5. Enhanced customer service: Credit card processing can enhance customer service by providing customers with the ability to pay online or over the phone.

6. Flexible payment options: Credit card processing can provide you with flexible payment options, such as the ability to accept multiple types of credit cards, debit cards, and other electronic payments.

7. Recurring billing: Credit card processing can enable you to set up recurring billing, which can help you automatically bill customers on a regular basis.

8. Increased efficiency: Credit card processing can help you increase the efficiency of your business by automating the payment process.

9. Improved reporting: Credit card processing can improve your reporting by providing you with detailed information about your sales and customers.

10. Lower costs: Credit card processing can help you lower your costs by eliminating the need for paper invoices and manual data entry.

Types of Credit Card Processing Fees

There are two types of credit card processing fees: interchange fees and assessment fees. Interchange fees are charged by the credit card companies. Assessment fees are charged by the credit card processors.

Interchange fees are set by the credit card companies and are the same for all processors. Assessment fees are set by the processors and can vary from one processor to another.

Assessment fees can be divided into three categories:

1. Transaction fees: These are flat fees charged for each transaction.

2. Discount rates: These are percentage-based fees charged on the total amount of the sale.

3. Monthly fees: These are flat fees charged each month, regardless of the number of transactions.

We at Host Merchant Services offer our clients some of the lowest credit card processing rates in the industry. We have a simple, straightforward pricing model with no hidden fees.