There are a lot of moving parts in the credit processing industry and it can be confusing. Many people don’t know all the different functions that take place just to swipe one credit card.
It’s important to distinguish between the different types of businesses involved in the process.
A credit card processor is any person that settles payments due, more specifically though, according to Techtarget, “A payment processor is a company that facilitates communication between the bank that issued a customer’s debit or credit card and the seller’s bank. The processor’s job is to verify and authorize payment. “
While a credit card issuer, is a bank or credit union that provides a credit card directly to the user. Some larger examples of this in the U.S. include American Express, Bank of America, Barclaycard, Capital One, Chase, Citi, Discover and US Bank. This is markedly different from an acquirer.
A card acquirer maintains a merchant’s account and allows them to accept payments. A payment processor is only responsible for processing payments so merchants are usually not dealing directly with the processor during the payment process.
Interchange, is the culmination of fees charged by banks to a merchant processing a credit card or debit card payment. The purpose of the fee is to cover the costs associated with accepting, processing and authorizing card transactions, each one of these businesses take a small percentage that adds up to the interchange fee.
But who gets what first? Who gets the most? What’s the order of it all?
In nearly all cases, it all starts with a processor.
Payment information is sent to the processor and communicates with the bank via the appropriate card networks (for example Visa or Mastercard). Then, the customer’s bank can either opt to approve or deny that transaction. Approval is pending the card details coming back correctly, not being expired, among a list of other things.
Approvals are sent back through to your payment processor. Then, finally back to your terminal or credit card reader. Transactions are “batched” for settlement at the end of each business day. Accounts are charged for the transactions, followed by the money becoming available to you in your business’s bank account.
It is important to also distinguish the difference between an issuing, and an acquiring bank. The simple way of remembering is issuing banks are for customers, but acquiring banks are for merchants. They accept payments for the merchant through the payment processor and credit network. This article goes into more detail about the topic.
Turnkey is a payment processor. Through our payment processing devices we can help you get your cash business or new business accepting credit card but we don’t do all the work ourselves.
Contact us today if you have any questions about any of the steps required to accept cards. While we might not do it all ourselves, we certainly have customer service agents well versed in each aspect of the processing system.
