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What Is Credit Card Processing and How It Works?

Looking for the right business bank account is easy, but understanding what each feature means can be overwhelming. Data sources including Dun & Bradstreet and the National Federation of Independent Businesses provide specifics about small businesses which you should consider when choosing a merchant account.

What Is Credit Card Processing?

Merchant services are often confused with credit card processing, but they are two different services. Credit card processing is when a business accepts credit or debit cards as payment for goods or services. This can be done in-person, over the phone, or online. Merchant services, on the other hand, are what allow businesses to accept credit and debit card payments. This includes setting up a merchant account, gateway, and payment solution. These merchant services are offered through special companies called credit card processors.

Credit Card Processing Terms and Fees:

Before you can get started, it’s important to know the terms and fees associated with a credit card processor:

Other fees that you should be aware of include PCI compliance fees, monthly minimums, and statement fees. Be sure to ask your credit card processor about all of the fees associated with their services so you can make an informed decision.

How Does It Work?

Credit card processing is a fairly simple process. When a customer wants to purchase something from your business, they will hand you their credit or debit card. You will then swipe the card through the credit card machine which will create a unique transaction code, called a “token”, for that specific purchase. That token gets sent to your gateway along with the customer’s information (card number, expiration date) so their bank knows where to send payment. From there you can either accept or decline the transaction based on if their available credit is enough to cover the purchase.

If you accept the transaction, the payment will be sent from the customer’s bank to your merchant account. This process usually takes just a few seconds, and then the customer can be on their way.

PCI Compliance:

Credit card processors are responsible for ensuring that all of their merchants are PCI compliant. This is a set of security standards that merchants must follow in order to protect customer data. The credit card processor will usually charge the merchant a PCI compliance fee in order to cover the costs of ensuring compliance.

Choosing a Processor:

When choosing a credit card processor, it’s important to consider the features they offer as well as the fees they charge. Some of the features you should look for include:

– Acceptance of all major credit and debit cards

– Ability to process transactions online, over the phone, and in-person

– PCI compliance

– Monthly minimums

– Statement fees

Be sure to ask the processor about any other fees that may be associated with their services.

It’s also important to know what type of business you are starting when choosing a credit card processor. For example, if you are running an ecommerce website, you will need a gateway which allows you to accept payments online. If you are running a restaurant, then your customers likely won’t be paying by credit or debit card, so you won’t need a gateway.

Finally, consider the features of each credit card processor based on your specific needs. For example, if you have a high volume of transactions or are located internationally, then some features offered by the processor may be more important to you than they would be for someone processing less frequently.

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