Credit Card Processing:

Your Basics

Credit cards are processed quickly thanks to the interplay between five main players: the merchant’s bank also referred to as the acquiring bank, consumer bank, credit card processor, the consumer, and the card networks. Below is a description of how it all works.

It’s important to note that at the end of the credit card process, the funds aren’t released, which means that the transaction isn’t complete. This is a completely separate process, and it can take several days, depending on your credit card network. In most cases, MasterCard and Visa transactions are settled at a faster rate than American Express.

The Safest Ways to Run Your Cards

According to The Federal Reserve, in the year 2015, Americans made over 144 billion noncash transactions. Although most American consumers prefer using debit cards to avoid credit card debt, they are more likely to lose their money through debit card fraud than when using credit cards to make purchases. Personal finance expert Beverly Harzog recommends five ways to protect your cards. We will start with the most effective method.

Chip & PIN card (in stores)

Most credit cards today have a smart chip, which is more secure than a magnetic stripe. The smart chip is a tiny computer that interacts only with payment terminals or ATMs. It is designed never to reveal secret information. Magnetic stripes can reveal all data, which makes it easy to skim and clone cards.

Ensure that you get a card that requires a PIN at the point of sale. This means that in case you lose your card or if it is stolen, it is useless to the person holding it – except for contactless transactions that won’t require a PIN when transacting certain amounts.

Chip & signature card (in stores)

Chip and PIN and chip and signature are two different card verification modes. A signature card will require a signature to authorize the transaction. However, this mode of verification is less secure than the chip and PIN verification method. This is because one can forge a signature. Additionally, most cashiers never bother to check if the signatures actually match the one on a card. Unlike signatures, a PIN cannot be easily duplicated.

Online transactions & Swiping cards (in stores)

When you swipe your card, the payment processor will read the magnetic field and match it to your bank information. However, because the data is static, it becomes easy for fraudsters to access your card information and even clone a new card. For as little as $20, fraudsters can make or get a skimmer device that they use to acquire your credit card information.

When it comes to online transactions, most online stores have enhanced their security systems. However, criminals are still targeting customers. When shopping online, you may encounter phishing whereby fraudsters send emails claiming to be from a reputable company. These emails encourage you to reveal your personal information, such as credit card numbers and passwords.

Manually Enter

Back in the days before the magnetic strip cards, transactions were handled using manual credit card imprint machines. Despite advancements in technology, merchants still use credit card scanners as a backup when processing transactions. While data security standards require merchants to secure the imprints physically, anything can happen when you leave a copy of your credit card behind.

Debit cards

Banks encourage customers to get debit cards to avoid using funds that they don’t have. Additionally, debit cards that are tied to a checking account enable customers to make purchases without paying the interest charges that credit card users incur.

However, there are several reasons why you should avoid using debit cards when making payments. The federal law doesn’t protect debit cards as it protects credit cards. In the case of debit card fraud:

  • You will be responsible for $50 of any unauthorized transactions in case you report that you lost your card within two business days.
  • If you fail to report within two days, you can lose up to $500 if your credit card is used without your authorization but only if you report within 60 days after you receive your statement.
  • In case you fail to report within the 60-day window, you could face unlimited damage, especially if a person uses your debit card.

Picking a Credit Card Processor (for Merchants)

When it comes to choosing a credit card processing service for your business, there are several options, and it can be a difficult task choosing one that fits your business needs. As you select the right credit card processor for your business, ask these questions:

  • What are the transaction fees?

    The transaction fees are the first thing you should consider when evaluating a credit card processing service. A typical transaction fee will range between 2% and 3% of each transaction. However, the rate will depend on several factors, including the type of credit card, the size of the transaction, and the type of transaction. However, don’t consider low rates without inquiring, whether there are additional fees.

  • Are there any other fees?

    Apart from transaction fees, a credit card processor may charge some flat fees. They will vary by name, applicability, and value. In addition, credit card processors also charge incidental fees which appear per occurrence. For instance, in case of a chargeback, you will be charged a chargeback fee. If you don’t have any chargebacks in a month, the chargeback fee won’t be charged. In order to have a clear picture of your monthly expenses, ask your credit card processor for a breakdown of all transactions.

  • When should you expect your money?

    Instead of getting paid for each transaction, your credit card processor will make funds available in your account after a few days or weeks. Therefore, always ask your credit card processor when you should expect to receive your payments.

  • Can you process different types of payments?

    If you have a physical store or business, you should consider a card reader that accepts all major debit and credit cards,  to avoid turning down customers. In case you’re planning to also accept online payments, you should choose a credit card processor that can support both physical and online transactions. Keep in mind that managing two credit card processors can be cumbersome; some processors may even prohibit you from working with another credit card processor.

  • What if there is a malfunction?

    In case your terminal malfunctions, you will need assistance. Therefore, you should select a credit card processor that is available 24/7.

How to Process Credit Cards Online

Payment gateway:

This enables you to authorize transactions. You can find a payment gateway with a service such as Sage  or

Store platform:

If you’re selling goods, consider setting up on a platform that allows you to accept payments as part of the format. Sites such as ShopifyeBay, and Etsy are good examples.

Merchant account & payment gateway:

You can set this up with a company like PayPal or Stripe, and it may involve fewer fees than setting up a merchant account separately, depending on the size of your business.

3 Tips for the online merchant

In the current digital age, credit card fraud has become a global plague. This has been caused mainly by eCommerce growth. It is estimated that by the year 2020, total losses due to online fraud will reach $7 billion. Remember, as the merchant you’re responsible for any fraudulent purchases on your website. To protect your eCommerce business, follow these three safety tips:

Take necessary fraud detection measures:

Monitoring your payment system for suspicious transactions is important. You can avoid fraudulent purchases by paying close attention to some red flags, like shipping addresses that don’t match the billing address, large purchases of the same item, buyers who try to send their credit card information instead of entering the information through your website, and multiple orders that are from the same shipping address but different cards.

Investigate EMV options:

EMV (Europay, Mastercard, and Visa) chip technology is the answer to online security problems for both merchants and customers. This chip holds the cardholders data, and it requires the user to provide a pin to validate an EMV online order. However, you will have to use an EMV system, or you will run the risk of paying chargeback costs.

Use software:

Most payment gateways have fraud monitoring and detection systems that automatically monitor transactions. These software check transactions in various ways, from a user’s IP address to the card’s payment statistics. These systems are meant to confirm that the user is the actual cardholder shopping online.

In-Person Credit Card  Processing 

The Common Retail Terminal

Some businesses, like restaurants and retail shops, involve face-to-face transactions with their customers. Therefore, you will perform in-person (card-present) credit card transactions. For such a transaction, the ideal type of payment terminal is a countertop point-of-sale terminal, which will allow you to swipe your clients’ credit cards through a card reader to process transactions. When you add a PIN pad, you will enhance payment security, and you can process EBT and debit cards as well.

EMV Compliant Processors

Chances are that you have encountered a chip-embedded credit or debit card. If you have, then you’re also familiar with the new payment process. Dip the card in an EMV slot and enter your pin to approve the transaction and take your card. However, as a business owner, you may still be waffling with the idea of accepting these chip cards. After all, will you need an EMV card reader?

Here’s what you should know: EMV technology is meant to cut down consumer fraud, and to also shift liability for fraudulent payment chargebacks from credit card and bank issuers to merchants. To become EMV compliant and avoid fraudulent payments, the EMV compliance law dictates that you should upgrade your payment system to accommodate EMV chip credit cards.

Mobile Terminals (Wireless)

These types of terminals are more suitable for merchants who operate in the field and have to collect payment there. Mobile and wireless terminals are also a great alternative in case you’re tired of billing your customers and waiting for the payments to come through.

These terminals are compatible with Android, iPhone, and other mobile operating systems. They can also serve as a processing solution in your business because they keep up with sales, and they are secure. With mobile and wireless terminals, you will be able to go beyond cash only terminals and traditional retail terminals.

Processors: The Mobile Card

Most people use mobile payments and mobile credit card processing phrases interchangeably. This has caused several businesses to overlook the numerous benefits that come with mobile card processing and why they should integrate a mobile POS. As a business owner, you should know that mobile credit card processing is much more than swiping cards using a mobile card reader. Today, you can accept and also reconcile mobile payments anywhere, anytime, and on any device.

You can use mobile credit card processing for both online and in-store businesses. To integrate this credit card processing system, you should first find a solution provider that offers a mobile POS that accepts EMV, magstripe, and contactless payments.

The mobile credit card processing system works just like your old-fashioned POS system, but it has some additional perks. Instead of having to wait when payments are being processed, a mobile credit card processing system will connect with your accounting and billing system and update your payment records in real-time. If you want to track both in-store and online payments simultaneously, a mobile credit card processing system fits the bill. This system also offers a better shopping experience.



Resources for the Business Owner

Small Business Administration: SBA is a great resource for information related to small businesses.

Credit Card Marketplace: Here, you will find several review sites that are dedicated to assisting both consumers and businesses understand the available credit cards.

The National Small Business Association: NSBA partners with other organizations, including credit card organizations, to provide you with relevant and accurate information.

The National Federation of Independent Businesses: The NFIB was formed to protect small businesses, and it provides information related to compliance, security, regulatory, and advocacy issues.

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