Have you recently opened a small business and want to know more about how credit card processing works? You have come to the right place! We have prepared a detailed checklist to help you understand the CCP entirely. It might seem a bit complex, but understanding each part of it will help your business thrive. Without further ado, let’s get started with everything you need to know about it.
Payment processing defines the steps taken to transfer cash as easily, quickly, and cost-effectively as possible from a profitable transaction into the bank’s account of your store. Although it’s essential for many businesses to accept cash payments, taking plastic-money plays a crucial part in expanding it. Only around 30% of all payments are done with paper money, while most customers rely on either plastic or digital wallets. To not lose the potential profit, you must understand how this works and why CCP companies are important.
This service allows businesses to secure the acceptance of plastic payments. The ability to catch card-based sales is used to involve lengthy authorization delays and complex configurations. Fortunately, there is more than one option available today, and a significant number of them are specialized for different types of businesses. This is a considerable advantage since a business owner can nowadays find a solution for his individual needs.
Because a large number of options are available, you might feel a bit overwhelmed. That’s why you’ll need to set up a merchant account. By far you should know what a merchant account is and how to read statements. Merchant providers that provide these merchant services will allow you to accept plastic payments. Another important step is selecting a reliable POS system.
Picking the right POS system is very important. But what does it mean, and how it affects my store? This is the combination of software and hardware, which allows brick-and-mortar merchants to capture plastic-money transactions. Additionally, a POS system will help you manage different business operations, such as scheduling meetings and keeping track of the inventory.
We recommend Clover Station Pro as the most secure, fastest, and most consumer-engaging POS system so far. It will help you capture consumer’s information, offer rewards, and accept almost every type of plastic payment available. Clover Station Pro comes with a smart terminal, allowing consumers to easily and quickly pay and confirm their orders.
CCP revolves around a multiple-step process and a variety of individuals/companies. Before we move onto the details of how this process works, we have to see who the key participants are.
You’re already familiar with the cardholder role if you have a credit or debit card. But just to be precise: a cardholder is somebody who acquires a bank-card from issuing banks. The cardholder then uses it to pay for goods and services.
As merchants we consider technically, any company that sells goods and services. However, keep in mind that only those who accept plastic-money are relevant in this case. That being said, setting up a merchant account and choosing the right CCP company is essential. Without it, you won’t be able to accept plastic-money from customers, i.e., cardholders.
Acquiring bank is a card association (Visa, MasterCard, American Express, and Discover) member and a link between realtors and issuing banks. Since it contracts with merchants and creates and opens the merchant account to allow cashless transactions, it is often referred to as a merchant bank. It provides retailers with equipment and software to accept plastic-money and deposits funds obtained through cashless sales into the merchant’s account.
As the name suggests, this entity issues cards to cardholders and is also a card association member. They are paying acquiring banks for purchases their cardholders make. Their role is to approve or decline transactions depending on the availability of funds too.
Visa and MasterCard act as a custodian for their respective brand. They serve as the governing body of financial institutions, ISOs, and MSPs that are collaborating together to facilitate card-processing and electronic transactions.
Their main responsibilities include governing their members, setting interchange fees and qualification guidelines, acting as an arbiter between acquiring and issuing banks, maintaining and improving cards and their brand, and making a profit. Visa uses the VisaNet network to transfer data between the association members, and MasterCard uses their Banknet network.
Cashless transactions are processed through different platforms, including wireless terminals, eCommerce stores, brick-and-mortar stores, and phone/mobile devices. The entire cycle happens in two to three seconds. We have broken down this action of the transaction into three phases by using brick-and-mortar business purchases.
These are steps taken during the authorizations phase:
Issuing banks will verify the cardholder’s plastic-money validity during the authentication phase using fraud protection services like CVV, CVC2, CVV2, CID, and Address Verification Service (AVS). Here’s how the authentication phase happens:
In the clearing phase, the transaction is posted to both the merchant’s statement and the cardholder’s monthly billing statement. The clearing occurs at the same time as the settlement phase:
Many retailers accept plastic payment for the convenience of their consumers. However, some retailers only accept cash or request a minimum purchase amount before authorizing the use of the plastic-money. The reason for that is pretty simple: they need to pay a fee in order to accept plastic payments.
Retailers usually spend an average of 1.5% to 3.5% to pay CCP companies. Hence, even retailers who choose to make the process possible will seek the cheapest pricing option. Card-processing rates could vary depending on the type of retailer and the platform a good/service is delivered (e.g., through e-commerce, phone, or at the retail store). They are usually charged per-transaction fees, volume-based fees, or flat fees.
Retailers are charged for accepting plastic payments and getting service from acquiring processors. The average credit card processing fee rate usually varies between 2% and 3% but can go up to 5% for online retailers who have to pay the higher end. This is known as a discount fee as well, and the rate comprises a couple of components:
This is an insurance product that protects any retailer who accepts plastic-money. The chargeback insurance protects the retailer from fraud during the purchase, where the use of the plastic-money has not been approved and covers claims emerging from the retailer’s liability to the service bank. Certain fraud prevention providers charge a flat-rate fee per swipe (0.5-15 cents per swipe), while vendors who provide this insurance typically charge a percentage-based fee (0.5-1.5%), which can be cost-effective for costly transactions.
As we already mentioned, accepting plastic payments will surely help your business thrive. One survey found that more than 80% of small businesses saw increased sales, and around 50% made more than $1,000 more a month since they started accepting cards. The bottom line is that you simply have to make plastic payment possible and know how CCP works if you want to have a successful store.
Hopefully, our checklist will come in handy whether you’re just opening a store or already have one. Even though you might find it a bit complicated, it’s, in fact, pretty simple. However, if you need more in-depth information or help, consider turning to a professional credit card and merchant service provider.