The Credit Card Processing takes place to solidify funds for the transaction between the customer and the merchant. It has 3 stages :
A cardholder starts a credit card transaction by presenting his or her card to a merchant as a payment for goods or services.
The merchant shall use his credit card machine, software, or gateway to transmit the information of the cardholder and the details of the transaction to his bank or the bank’s processor.
The acquiring bank (or its processor) captures the transaction information and routes it through the appropriate card network to the cardholder’s issuing bank for approval.
MasterCard transaction information is routed between issuing and acquiring banks through MasterCard’s Banknet network. Visa transactions are routed through Visa’s VisaNet network.
The credit card issuer receives the transaction information from the acquiring bank (or its processor) through Banknet or VisaNet and responds by approving or declining the transaction after checking to ensure, among other things, that the transaction information is valid, the cardholder has sufficient balance to make the purchase and that the account is in good standing.
The card issuer sends a response code back through the appropriate network to the acquiring bank (or its processor).
The response code reaches the merchant’s terminal, software or gateway and is stored in a batch file awaiting settlement.
A merchant begins the settlement process by sending a batch of approved authorizations to their acquiring bank (or the bank’s processor).Authorization batches are normally sent at the end of each business day.
The acquiring bank (or its processor) shall reconcile and transmit the batch of authorisations through an interchange through the network of the appropriate card association (VisaNet or Banknet).
The acquiring bank also deposits funds from sales into the merchant’s bank account via the automated clearing house (ACH) and debits the merchant’s account for processing fees either monthly, daily, or both depending on the merchant’s processing agreement.
The card association debits the issuing bank’s account and credits the acquiring bank’s account for the net amount of the authorizations which is gross receipts less interchange and network fees.
The cardholder is responsible for repaying his or her issuing bank for the purchase and any accrued interest and fees associated with the card agreement.
In some cases, the payment card fee is refunded days or months after the process described above. It may be that the goods were defective or that the charge for the cards was fraudulent/made without authorization.
In either case, the cardholder demands that the charge be dropped.
The merchant can either agree to a refund or enter into a dispute process to prove that the charge was not fraudulent.
Additional resources between the banks must be devoted to the dispute, so additional costs may be incurred.
These fees can vary depending on the type of credit cards you accept, and they include several different layers of charges:
Interchange fees: This fee, which can also be referred to as a swipe fee or a discount rate, is paid by businesses directly to the credit card issuer. This fee may be higher for online purchases to account for the increased risk of fraud when a credit card isn’t present for a transaction. Also note that interchange fees can depend on the type of card, how much is being charged, and the type of business being operated.
Payment processor fees: It’s also possible the payment processor will charge an additional fee to facilitate the payment. Payment processor fees can be broken down into smaller fees that take place over time and may include monthly or annual account fees, equipment rental fees, withdrawal fees, statement fees and others.
Assessment fees: Assessment fees are paid to the credit card network for the purchase to take place. Note that assessment fees are paid based on total monthly sales instead of a per-transaction basis.
Interchange fees are paid or collected by the card-issuing banks that provide Visa, MasterCard, Discover, and American Express cards. These cards are commonly consumer credit or debit cards, but can also be corporate, business, purchasing or rewards cards. Interchange fees typically consist of a percentage of each transaction accompanied by a flat per-transaction fee. The exact cost per transaction depends mainly on the type of card and how it’s processed.
This type of pricing model comes with different pricing for transactions in different tiers or buckets. For example, certain qualified transactions may be charged a lower rate, whereas others require a higher percentage in fees. This type of pricing typically works best for merchants who process most of their transactions in the lowest tier.
Flat rate pricing works exactly as it sounds. With this pricing model, the credit card processor will charge the merchant a fixed percentage of each transaction plus a small per-transaction fee (usually $0.20 to $0.30 per transaction). This pricing model makes it easy for merchants to anticipate their credit card processing costs over time.
Billback pricing or Enhanced Recover Reduced Percent (ERR) is a mix of Interchange Cost Plus and Tiered Pricing. The merchant is charged a flat discount rate like they would be if they were on Interchange, but then at the end of the month, they are charged the ERR rate which is dependent on how the transaction qualifies.
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