Every time a customer swipes their credit or debit card at your business, their payment embarks on a complicated but lightning-fast journey. It may only take a few seconds for your payments terminal to flash “accepted” and prompt the customer to remove their card, but in those seconds, the customer’s funds will pass through a relay of electronic hands, eventually depositing the funds to you.
Every time a customer swipes their credit or debit card at your business, their payment embarks on a complicated but lightning-fast journey. It may only take a few seconds for your payments terminal to flash “accepted” and prompt the customer to remove their card, but in those seconds, the customer’s funds will pass through a relay of electronic hands, eventually depositing the funds to you.One of the most important of these hands is a credit card processor. Credit card processors are third-party companies responsible for collecting cardholder data and sending it across various secure gateways to be approved or declined by credit card networks. The processor facilitates a series of steps in which the funds are passed through numerous other entities including the merchant, the credit card networks, and the bank that issued the customer’s card.It’s a complicated process, but it happens millions of times per day. To put it into perspective, Visa alone processes upwards of 100,000 transactions every second, totaling roughly 150 million transactions per day. But, because payment processing is so commonplace, many merchants don’t think twice about their credit card processor. They consider their processor to be a proverbial man behind the curtain which, unfortunately, can cost merchants in the long run. The credit card processing industry is riddled with hidden fees and plagued by a lack of transparency. It all operates on the assumption that merchants don’t understand, or don’t care enough, to look into what they’re actually paying. Processors make extra profit off of merchants by charging high fees and by playing around with percentages. A merchant’s lack of understanding is a processor’s gold mine.In order to avoid the trap of payment processors, it’s important for merchants to have a grasp on what exactly happens with each payment they process. Knowing this journey will enable merchants to spot when something is amiss, specifically when it comes to processing fees. Below is a guide that explains the payments process from start to finish:
The credit card payment process is like a relay race. The funds from credit cards are passed around in a loop, like a baton, to several different participants that must complete a portion of the race before the merchant can receive compensation for their services. The payment processing team includes credit card networks, banks, and the processor. However, in this relay race, each participant breaks off a piece of the baton to keep for themselves. By the time the baton has completed the loop, merchants receive lesser funds than the consumer released, and each participant in the relay leaves happy.
The customer stands at the starting line. When he or she swipes their credit card, the baton is passed through a secure gateway that connects the merchant terminal to the credit card processor. The processor acts as the team captain, so they’ll take the largest dollar amount out of the total.There are several common fees that a payment processor may charge a merchant. For instance, all processors charge PCI compliance or PCI non-compliance fees, merchant club fees, termination fees, monthly fees, annual fees, and statement fees, just to name a few. All of these are typically buried in wordy contracts, and almost all of them are negotiable.In many cases, merchants face paying 3-5% of their total revenue to their processor after fees. After taking their hefty portion, the processor will carry the funds to the next participant, the credit card issuer.
A credit card issuer is a bank or credit union that provides consumers with a credit or debit card. The issuer sets credit card limits for card carriers and is responsible for sending payments to merchants when a transaction takes place using a credit card issued by that bank. Examples are Bank of America, Chase, and Wells Fargo. Their primary role in the payments process is to review transactions for fraud. Upon receiving the funds, credit card issuers will charge a transactional fee, which is based on a percentage of each transaction made. This is often a universal, non-negotiable rate. However, in some cases, the rate can be marked up (often without the merchant noticing). If your transaction fee has been marked up, it may be possible to negotiate it down to the basic rate.Once the credit card issuer approves the transaction as legitimate, it will remove the payment amount from the customer’s account. It will then round the final bend and relay the information back to the processor. The processor will then notify the merchant of the confirmation. The funds transferred from the customer’s account are then credited to the merchant’s account.
At this point in the race, the funds are nearly back to the merchant. But the victory may not be so sweet. Once the merchant receives word that the transaction has been approved, the money will be deposited into their account—minus the fees charged by the payment processor and the credit card issuer.It’s a quick race with fees and other hurdles that can blindside the merchant, each chipping away a little bit of their profit. However, by taking the time to understand how credit card processing works and finding the right processing company, merchants can save their bottom line.
At SwipeSum, we’re tackling some of the biggest problems in the credit card processing industry, starting with transparency. We like to think of ourselves being in the payments industry but not of the payments industry. First off, our services are completely free. We won’t hide fees or push lengthy and confusing contracts. We realize that business owners need to know up front what their costs will be so we work with processors to ensure that’s the case.We’ll negotiate with processors to cut extra fees and to keep fixed rates fixed. Our clients won’t sign on with a processor until we’re certain they have the best rate. When clients sign on through SwipeSum.com, we’ll conduct an investigation into their needs and their current processing system. We’ll figure out where they can be saving money and then follow through. If you’re tired of being taken advantage of by your credit card processing company, visit our website for more information on how you can start saving now.
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