The ability to accept credit cards as a form of payment is critical to most businesses. Credit cards drive day-to-day operations whether a consumer is tapping a phone, entering credit card information online or swiping a card in a retail location. All these types of transactions involve credit card payment processing in the background, transferring money securely and efficiently.
Although receiving a credit card payment may seem like a straightforward task, it is wise for business owners to educate themselves on how credit cards are processed so they can make better business decisions, protect themselves from paying high fees and choose a provider that is right for them.
What is Credit Card Payment Processing?
Credit card payment processing refers to how merchants can accept credit card payments from shoppers. Also, and transfer the funds from the customer’s credit card to their own bank account. This process connects multiple parties together in just a few seconds during the payment process, which include the customer’s bank (or credit card issuer), the credit card network and the merchant’s (or vendor’s) payment processor.
When a shopper makes a purchase using a credit card, their credit card information is securely sent through the system looking for a merchant to receive the transaction and for the funds to transfer to. As soon as the shopper submits the credit card information for approval, the credit card issuing bank verifies the transaction by confirming that the shopper has sufficient funds available to complete the transaction and will send an approval or decline back to the payment processor.
When a credit card transaction has been approved, it completes the transaction and ensures that once funds settle, they will transfer to the merchant’s (or vendor’s) account. The successful processing of each credit card transaction consists of a number of coordinated activities which are designed to balance the need for speed, security, and accurate reporting.
Why Credit Card Payment Processing Matters More Than Ever
The payment behavior of consumers has changed rapidly in the past few years, with customers looking for quick, flexible and safe ways to pay for their goods. If your business doesn’t provide reliable credit card payment processing options, you will lose sales, customer loyalty and trust.
Aside from the way you process credit card payments, the efficiency of that process will also have an effect on other aspects of your business, including cash flow, customer experience and how your brand is perceived by others. If your customers are experiencing slow deposits, confusing statements or unreliable fees, it is going to create additional operational issues for you as the owner while you are trying to grow your business.
For small businesses, having an effective credit card payment processing solution is key to being able to scale your business without having to continually catch up to yourself.
How a Payment Moves from Swipe to Settlement
One of the keys to understanding how a credit card payment is processed is to understand the different components that make up the overall process. The technology involved in the transaction is complex, however, but the steps themselves are quite simple.
Key Steps in a Credit Card Payment Transaction
- Authorization – The customer makes a credit card payment request. Then the transaction is sent for approval via the network.
- Authentication and Approval – The card issuer checks the credit card information and determines if enough credit is available to complete the transaction.
- Batching and Clearing – Once all of the valid transactions are approved by the issuer, they are batched together and submitted to the various card networks.
- Settlement – Once all of the valid transactions have been processed, the funds are transferred from the issuer’s account to the merchant’s bank account, usually within 1 to 2 business days.
Each of the above steps must be properly taken for the credit card transaction to be secure and processed accurately.
Additional Factors That Impact Payment Performance
Although all credit card transactions appear similar on the surface level, many factors can affect their performance (i.e., the way credit card payments are processed) behind the scenes. Some of these include the following:
1. How Credit Card Payment Providers Establish Processing Rates and Fees
When determining rates and fees for credit card processing, a provider’s pricing structure (e.g., tiered, interchange plus, flat rate) has a direct impact on a merchant’s profit margins. This is particularly true for small businesses that rely heavily on credit card sales.
2. The Level of Compatibility Between Credit Card Payment Software and a Merchant’s System
Outdated hardware and/or a lack of integration between a merchant’s credit card payment hardware and software can result in slower credit card payment processing and friction at checkout. Newer systems allow for greater functionality with regard to mobile payments, online transactions and point-of-sale integration.
3. The Speed of Fund Availability from Credit Card Payments to a Merchant’s Bank Account
The speed at which funds from a credit card payment become available in a merchant’s bank account significantly affects a merchant’s cash flow. The faster the funds are available to the merchant, the more control the merchant will have over expenses and growth opportunities.
Common Challenges Businesses Face with Credit Card Payments
There are a range of different options for credit card processing. However, many businesses won’t realize they’re having a problem with their credit card processor until they’re already committed to it.
Some of the more common frustrations that companies experience when processing their credit cards are, high transaction fees that are charged to them, minimum terms on contracts, additional or hidden costs, and delayed deposit of their funds.
Some payment processors offer attractively low rates during the introductory periods. However, their rates are significantly higher as time goes by. Other processors only provide minimal support when problems occur.
Security is yet another area of concern when using credit card payment methods. Just one breach or compliance issue regarding a business’s credit card transaction records can cause an uninsured business much damage to its buyers’ confidence and can expose the business to huge fines or penalties. As such, all businesses must work with a vendor that is both known for its transparency and takes credit card payment security seriously.
Choosing the Right Credit Card Payment Partner
The decision on which company will provide credit card processing services to your business is not simply a matter of price but rather a strategic choice. The company should offer a variety of different options based upon the size, type of business, and future growth of the client.
A good credit card processing company will have clearly defined pricing, a speedy funding cycle, and responsive customer support. Additionally, they will be flexible in their approach to serving small businesses. As well as, providing the ability to create customized contracts and provide customized solutions. The right credit card processing company will work as an extension of the business and help in streamlining operations rather than complicating them.
Why Gulf Management Systems Is the Best Choice for Your Small Business
When selecting a credit card payment processor, Gulf Management Systems is an excellent choice for your small business because we provide some of the most competitive rates in the business for reliable, secure services. The small business owner would benefit greatly by using our competitive prices, allowing them to keep a greater share of their total revenue while providing high-quality service and support to their customers.
We also offer a comprehensive suite of payment solutions tailored to the needs of today’s small businesses. This includes options for processing credit cards at the point of sale or through a mobile device, as well as additional services such as online invoicing, recurring billing, ACH payments, and electronic checks. These solutions provide small businesses with the flexibility to accept payments based on their customers’ specific needs.
Moreover, Gulf Management Systems’ dedication to transparent pricing and personalized customer service is unmatched. Small business owners receive easy-to-read pricing information, statements that are simple to read, and direct support from a team that understands the unique requirements of small business owners. With secure technology, fast funding, competitive rates, and a comprehensive range of solutions for processing credit cards, we make the process of managing credit cards simple, efficient, and hassle-free.
