Credit Card Processing Company

What is credit card processing?  Most people think processing credit cards is a simple transaction in which the merchant receives a payment and the costumer establishes an IOU.  While this is the end-result over 99% of the time, there is quite a bit going on in very short period of time to get to that point.

In order to process credit card payments:

  • The equipment(machine, mobile, internet gateway …) being used when processing credit card payments must communicate the transaction details with the credit card processor, which is typically an outsourced processor or acquiring bank.
  • The processor then passes the data along with an authorization request to the issuing bank.  The issuing bank is the bank listed on the consumer’s credit card.
  • The issuing bank sends their approval or denial of the transaction back to the processor.
  • If the issuing bank approves the purchase they will issue an authorization code, which will reserve funds against the customer’s credit balance.
  • All of this information is then transferred back to the processing equipment being used by the merchant who now knows whether the credit card was accepted or denied.

This entire process typically takes a few seconds or a minute at the most, but a lot of people get tripped up at this point because they believe the transaction is complete.  Remember the funds are only reserved at this point and have not yet been credited to the merchant.  The processing equipment saves a record of all the authorization codes for the day in a batch.  You must process your batch if you want to get paid.  The batch contains the records for all the transactions since you processed your last batch.  When you process your batch the transaction data gets sent to the banks and funds are transferred to the merchant’s bank account.

Credit Card Processing Company

As you can see processing credit card payments is much more involved than it seems.  Hopefully this gave you a better understanding of the purpose of a credit card processing co.  Most people would tell you these companies are synonymous with merchant account companies.  Technically that could or could not be true.  The processing company could be the merchant provider, the issuing bank or a third party processing company.  The “who” is not as important as “what” these companies do.  For the purpose of this article, let’s assume the processing is done by the merchant companies.  In that case, the merchant account provider would serve two purposes:

  • Merchant Processing
  • Solutions for Merchant Credit Cards

A credit card processing merchant provider is typically (not always) an independent service provider (ISO).  The ISO acts as the liaison between the merchant and all the parties involved in processing credit cards.  As a merchant, you would only have a relationship with the merchant provider who would package the credit card services of the processor, acquiring bank, and credit card companies in their fees. So regardless of whether you have an online merchant account or a POS account you wouldn’t have to deal with all the parties involved and the somewhat complicated process described above would not be something you really need to concern yourself with.

So you are now familiar with the process, but you still need to find a company that will provide you with the top merchant solutions for credit card service.  What should you care about in your search for the best credit card processing company?

  • Customer service and technical support
  • Does your provider specialize in one product offering or many (merchant accounts online, POS, mobile, telephone, ect.)
  • Contracts and cancellation fees
  • Reputation, customer testimonials, accredited by the Better Business Bureau
  • Best rate merchant accounts for your business

These are just a few of the considerations, but don’t worry we will cover the rest in the merchant account section of this site.