Credit Card Processing - Understand The Savings And Benefits
MerchantMatch provides a variety of valuable services. Unlike working directly with one institution, we give our customers a choice of domestic and international banks to work with. One application will match a client with the bank that will fill their needs at the lowest rate available.
Most businesses are comfortable letting their banks handle their credit card processing services and dont realize that banking institutions can charge higher rates. Merchants might not realize that they may be paying more for transactions than what other service providers are offering.
Lowering costs is an important goal of any good business, yet a merchant may not always research the area of services that can yield immense savings to their organization. Its important especially for a new business to understand how merchant services work. One of the most important services is credit card processing, an essential mechanism for most all businesses.
How Credit Card Processing Works
There are essentially up to four entities involved each time a company makes a credit card transaction. A merchant receives a credit card payment; the acquiring bank processes the purchase and provides the actual services, and the bank that issued the card in the first place, which is called the issuing bank. And then theres the customer, the reason the entire credit process was created.
The issuing bank lends the customer money for the transaction. The customer will then choose to pay off their debt in the required time, generally 30 days, or they can elect to add it to their account balance which will be charged interest. The acquiring bank basically is lending money to the cardholder, which is less than what the customer will actually be charged.
Most banks issue their own credit cards to their customers. The issuing bank charges an interchange fee, a percentage of the transaction. The acquiring bank also charges a percentage fee that might have other fees attached. This is called the discount rate. Both the issuing and acquiring banks generally have a small fixed amount attached to each transaction.
A Few Factors Determine the Interchange Fee
There are several elements that a bank examines when applying their fees. An important consideration is the type of merchant that will accept the customers card. Some businesses have higher risks of chargebacks, when the customer disputes a charge card transaction be it by complaint of a poor product or service and gets their money back.
When this happens, the money paid by the acquiring bank will generally charge the merchant what was originally paid to them, as well as any additional fees. Merchants can make an appeal to not have to repay the chargeback to the acquiring bank, but its a long process, and most appeals are lost.
A credit card physically used for a transaction is a safer bet because the receipt is signed. Also, when the items purchased are less expensive, complaints are less likely, therefore chargebacks arent a great concern. The merchants dealing in more routine products and services, like restaurants and gas stations, receive better rates from the acquiring bank because they have a lower risk of chargebacks.
Transactions, especially large ones, and those completed on the phone or online are the riskiest. If a merchant generates a lot of complaints they are considered a higher risk. This is why acquiring and issuing banks want to know what type of business is applying for their services. These banks have even developed a 4-digit code to identify and group these high risk industries called MCC Codes.
Interchange rates will vary according to the MCC code of a business.
The risk of a chargeback will be in effect until the transaction is complete. Sometimes a product is backordered and needs to be shipped to the customer. Warranties may apply which means there is still possibility of a chargeback during the warranty period.
Merchant Service Providers
For merchants who want to accept credit cards, they need to work with a merchant service provider who usually maintains steady contact with their merchants. A sales person will explain the services at a bank or through a website. Merchant service providers can represent a bank, a small company providing limited service, or one that offers a variety of banks and institutions so that the merchant can select their personal preference of rate and services.
The companies that offer merchant services handle most all aspects of the sales transactions. They act as a hub and send information between the merchant and banks. Monthly statements to the merchants can be sent from the bank or the company that provides the merchant services. These services can include card readers and other equipment.
Credit Card Processing Affects Merchant Credit Scores
When a customer purchases money with a credit card, they are essentially taking a loan out from the bank. They borrow money to make their purchase, but not from the merchant. That risk goes to the acquiring bank, which gives cash to the merchant for the customers purchase. This is where risks are considered, and an underwriter evaluates those risks. Their evaluation is an extremely significant factor in determining the merchants credit score.
Knowing a risk may be involved, the acquiring bank will place the funds for the transaction into a merchants account up to a few days after the transaction took place. The amount of money a business brings in through credit card transactions determines the amount of money a bank is willing to lend.
Its essential for businesses to understand the savings and benefits available from a good merchant service provider, as informed decisions will support the financial health and ultimate success of their company.
Most businesses are comfortable letting their banks handle their credit card processing services and dont realize that banking institutions can charge higher rates. Merchants might not realize that they may be paying more for transactions than what other service providers are offering.
Lowering costs is an important goal of any good business, yet a merchant may not always research the area of services that can yield immense savings to their organization. Its important especially for a new business to understand how merchant services work. One of the most important services is credit card processing, an essential mechanism for most all businesses.
How Credit Card Processing Works
There are essentially up to four entities involved each time a company makes a credit card transaction. A merchant receives a credit card payment; the acquiring bank processes the purchase and provides the actual services, and the bank that issued the card in the first place, which is called the issuing bank. And then theres the customer, the reason the entire credit process was created.
The issuing bank lends the customer money for the transaction. The customer will then choose to pay off their debt in the required time, generally 30 days, or they can elect to add it to their account balance which will be charged interest. The acquiring bank basically is lending money to the cardholder, which is less than what the customer will actually be charged.
Most banks issue their own credit cards to their customers. The issuing bank charges an interchange fee, a percentage of the transaction. The acquiring bank also charges a percentage fee that might have other fees attached. This is called the discount rate. Both the issuing and acquiring banks generally have a small fixed amount attached to each transaction.
A Few Factors Determine the Interchange Fee
There are several elements that a bank examines when applying their fees. An important consideration is the type of merchant that will accept the customers card. Some businesses have higher risks of chargebacks, when the customer disputes a charge card transaction be it by complaint of a poor product or service and gets their money back.
When this happens, the money paid by the acquiring bank will generally charge the merchant what was originally paid to them, as well as any additional fees. Merchants can make an appeal to not have to repay the chargeback to the acquiring bank, but its a long process, and most appeals are lost.
A credit card physically used for a transaction is a safer bet because the receipt is signed. Also, when the items purchased are less expensive, complaints are less likely, therefore chargebacks arent a great concern. The merchants dealing in more routine products and services, like restaurants and gas stations, receive better rates from the acquiring bank because they have a lower risk of chargebacks.
Transactions, especially large ones, and those completed on the phone or online are the riskiest. If a merchant generates a lot of complaints they are considered a higher risk. This is why acquiring and issuing banks want to know what type of business is applying for their services. These banks have even developed a 4-digit code to identify and group these high risk industries called MCC Codes.
Interchange rates will vary according to the MCC code of a business.
The risk of a chargeback will be in effect until the transaction is complete. Sometimes a product is backordered and needs to be shipped to the customer. Warranties may apply which means there is still possibility of a chargeback during the warranty period.
Merchant Service Providers
For merchants who want to accept credit cards, they need to work with a merchant service provider who usually maintains steady contact with their merchants. A sales person will explain the services at a bank or through a website. Merchant service providers can represent a bank, a small company providing limited service, or one that offers a variety of banks and institutions so that the merchant can select their personal preference of rate and services.
The companies that offer merchant services handle most all aspects of the sales transactions. They act as a hub and send information between the merchant and banks. Monthly statements to the merchants can be sent from the bank or the company that provides the merchant services. These services can include card readers and other equipment.
Credit Card Processing Affects Merchant Credit Scores
When a customer purchases money with a credit card, they are essentially taking a loan out from the bank. They borrow money to make their purchase, but not from the merchant. That risk goes to the acquiring bank, which gives cash to the merchant for the customers purchase. This is where risks are considered, and an underwriter evaluates those risks. Their evaluation is an extremely significant factor in determining the merchants credit score.
Knowing a risk may be involved, the acquiring bank will place the funds for the transaction into a merchants account up to a few days after the transaction took place. The amount of money a business brings in through credit card transactions determines the amount of money a bank is willing to lend.
Its essential for businesses to understand the savings and benefits available from a good merchant service provider, as informed decisions will support the financial health and ultimate success of their company.
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