Credit Card Processing 101

If you accept credit cards at your business, then you probably get a monthly statement giving a summary of all of your transactions. Although some statements are more detailed than other, it can be very easy to get very confused looking at any statement.

Let’s go over the basics of how credit card processing works so you can feel confident you’re not falling victim to hidden fees:

There are a couple of different players in a credit card transaction, so let’s start from square one. When a customer is in your store or looking at your e-commerce website and decides they want to make a purchase, they either swipe their credit card on your terminal or key in their information online. We get this part – but what’s happening on the back-end is key. When a transaction occurs, the issuing bank is the first to be charged. This is where the money is coming from when a purchase is made – whichever bank the customer has an account in. When a credit card’s information is put in, it is being authorized to make sure there are sufficient funds for the transaction to proceed. This is where the credit card processor comes in – they communicate between the merchant and the issuing bank to see if the customer’s bank approves or denies this transaction. If approved, the customer’s bank sends the money to the credit card network which takes it to the merchant’s bank. The best way to describe the role of a credit card processor is a liaison between all of the different players in a transaction so that the merchant only has to deal with the processor who then communicates with the other necessary parties. Now that we’ve reviewed the different roles in a transaction, it now makes sense where the different fees are coming from. The processor charges fees to carry out these transactions, the banks charge a fee because of the fees they are charged by the credit card associations, and these associations (Vise, MasterCard, etc.) work with government agencies to develop the actual rules that go behind credit card use. If your statements are still confusing to you, contact us at PayHub today to learn more about the credit card transaction process.