Whether you are an offline or online merchant, it is most likely that you deal with credit card processing on a daily basis. While many sellers disregard the complex algorithm that launches after the client clicks the “Pay” button, it is best to know how it works.
These days, the vast majority of trade activities are conducted with credit card purchases at land-based and online stores. But how do credit card transactions work? To understand what exactly the process entails, it is vital to know which entities participate in it.
Payment Processing: What Is the Meaning Behind This Term?
Payment processing is a series of operations required for a credit card transaction initiated online, in-person, over the phone, or via mail to be completed. This process occurs behind the scenes every time a consumer attempts a purchase and is facilitated by multiple entities.
Parties Involved in Credit Card Processing
Behind a seemingly simple purchasing process, there is a complex system of cooperating parties, such as:
The card network mentioned above is the last puzzle piece that makes the credit card processing algorithm complete. It acts as the transactions’ facilitator by creating virtual payment infrastructures.
The major globally renowned credit card networks are:
Apart from aiding the transaction flow, a credit card network regulates which cards a certain merchant deals with. However, the acceptance rates of the major card networks are fairly similar, exceeding 10 million locations.
Now that you are familiar with the main elements of this system let’s move on to find out the key stages of how credit card processing works.
Main Steps of Credit Card Processing
So what is a credit card processing system, and what steps does it consist of? Here is what happens during card processing:
Depending on the seller's bank, the type of credit card, and the payment system used, a commission may be charged during the transaction.
There are different types of fees associated with every credit card transaction’s processing, namely:
When picking a card payment processor, you should ensure that you are aware of all the fees that you are expected to cover.
Common Payment Processor Pricing Models
Another important factor to consider when it comes to accepting card payments is the processor’s pricing model. Some of the most common tariff types are:
As a rule of thumb, credit card payments can take anywhere between 24 to 72 hours to be processed, with the majority of transactions being finalized within the first two business days.
However, merchants that work with payment processors can expect additional waiting time before receiving the funds, as these service providers separate transactions in batches and send payouts on a fixed schedule, typically once a week.
Depending on the contract, it may also be possible that your payment processor makes payouts only when a certain threshold has been reached. While the processing time can be longer in this case, it is a cost-effective option that can save you a pretty penny in the long run, as it helps you avoid covering extra charges that can occur depending on the payment delivery method.
Besides, not all payments are processed at the same speed. The speed with which the funds reach the merchant depends on a variety of factors, including:
Online and phone payments are usually the fastest to be processed, taking approximately 1 to 3 business days. Mailed credit card payments, on the other hand, are the longest to deliver and are vulnerable to delays caused by such factors as mail volumes and postal holidays.
In the event that the funds haven’t reached the merchant account within the estimated period, it often proves to be useful to check the transaction status with the payment processor. This can be done by calling or submitting a support ticket and requesting a transaction report.
When you present a bank card to a cashier in an offline store to pay for goods, the POS terminal reads the card data and payment information and sends it to the acquiring bank where the merchant has an account. The merchant's bank then contacts the cardholder’s bank. If the transaction is approved by the issuing bank, then the specified order amount is transferred to the seller's account.
How to Optimize the Process?
It is only natural for a merchant to wish to create the smoothest purchasing process for the customer. Luckily, land-based businesses have the opportunity to do so by optimizing credit card processing, some of the best solutions being:
It is also worth for merchants to look into obtaining an all-in-one solution, such as a smart POS terminal, which typically:
Besides, the smart POS providers often cater to the clients’ need for technical support and consultations.
In e-commerce, credit card processing follows the same algorithm as in offline stores, with one exception: the POS terminal is replaced by a payment gateway. While a simple software solution may be sufficient for a small business, larger companies must think of card processing optimization.
How to Improve Card Processing in E-Commerce?
So how does merchant processing work for companies that deal with online trade? As the popularity of online stores grows alongside the trading volumes, the need for smart solutions arises. Therefore, an E-commerce gateway is worth implementing. Such a payment gateway features the following:
At Payneteasy, we strive to provide users with intelligent custom solutions. As a business owner, you are sure to appreciate the benefits we offer, such as:
Throughout the years, our company has been demonstrating an unparalleled level of service and a high customer satisfaction rate. Our white label payment gateway solution is exactly what your business needs to level up credit card processing. Tell us about your project, and we will get back to you with a personalized offer within a day!