How Credit Card Processing Works

Here’s a brief guide on how credit card processing companies work and the impact

of credit card acceptance on small businesses.

Table of Contents

.01 – How Credit Card Payments Process

.03 – Choosing a Credit Card Processing Company

.04 – Security Features

.06 – The PCI Security Standards Council

.07 – Benefits of Credit Card Acceptance

.08 – Summary

Page .00 How Credit Card Processing Works

How Credit Card Payments Process

Page .01 How Credit Card Processing Works

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How Credit Card Payments Process

The merchant submits the information

about a credit card transaction to the credit card gateway for the

customer.

The payment gateway process the transaction

information by sending it to the merchant’s bank processor using a

secure connection.

The merchant’s bank then submits the transaction

to the credit card network, which routes the transaction to the

customer’s issuing bank.

The issuing back will either accept or decline

the transaction, depending on the availability of funds. Then, they

pass the information back to the credit card network and to the

merchant bank’s processor.

Transaction results are sent to the gateway

and the funds are transferred via the credit card network to the

merchant’s bank account in what is known as the settlement process.

Page .02 How Credit Card Processing Works

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Choosing a Credit Card Processing Company

The merchant agreement is the most important part in choosing a merchant

service provider. You need to ensure that the terms of this agreement are

consistent with your individual business’s needs.

• The merchant service provider agreement should be a

good fit for your business size, transactions and

industry.

• If American Express and Discover cards are used for

more than 25% of your business, make sure you can

process these cards directly, just as you would with Visa

or MasterCard.

• If you accept payments from corporate cards, make

sure your system supports this and the terms of the

support are laid out in your merchant agreement.

Accepting credit cards can increase revenue by as much as 23%.

- Maverick BankCard

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Security Features and Standards

Page .04 How Credit Card Processing Works

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Security Features

Having the right security is essential. Make

sure your processing package incorporates the

following:

Address Verification Services (AVS):

The AVS check requires billing information, specifically the

billing address, be correctly entered before a transaction is

processed.

Card Verification Value (CVV):

The Card Verification Value (CVV) check is sometimes also

referred to as the CVV2 card type, the CID, or CVC2. When

the CVV2 check is required, there are two communications in

the authorization process.

1. Confirm the dollar amount to be authorized, ensuring the

funds are actually available.

2. Confirm that the CVV2 code matches bank records.

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The PCI Security Standards Council

The Payment Card Industry Security Standards Council (PCI SSC)

was created by major credit card companies in an effort to better

protect credit card holder data.

• The PCI SSC operates a number of programs to train, test and certify

organizations and individuals to assess and validate adherence to

PCI Security Standards.

• When a company is PCI compliant, it easier to gain a customer’s

trust. [Visit the PCI SSC website for more on compliance].

• With compliance, a company is better protected against financial

liabilities including fees, fines and even potential lawsuits.

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Benefits of Credit Card Acceptance

Beyond an increase in sales and eventual profits,

here are three ways your business can benefit from credit card acceptance.

Improved Customer Satisfaction.

Customers like the speed, flexibility and convenience that come from paying with

their credit card over cash.

Appeal to and Entice Impulse Buyers.

The convenience of using credit cards tends to increase the likelihood of "impulse

purchases.”

Faster Payment.

Electronic payments will enable faster payment cycles, which can lead to improved

cash flow and decreased billing overhead.

83% of businesses that accept credit cards make more sales than those that don’t.

- Intuit

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Summary

As you get started with accepting credit cards for your own

business, make sure you understand:

» how credit card payments process

» how to choose a payment processing company

» security features your business needs

» steps that need to be taken to ensure PCI compliance

Visit Business.com for more information about credit card

processing.

Simply put, our mission is to help people grow their businesses.

This is why over 20 million buyers from small-to-medium

enterprises turn to Business.com every year to discover,

compare, and purchase the products and services they need to

run and grow their businesses.

It's also why over 10,000 advertisers use Business.com to reach

these valuable buyers, generating well over $1 billion in

incremental annual revenues.

Before you even start processing sales, your merchant

services provider will charge you a number of fees. First, there's

the account setup charge to open a merchant account, and

there's usually a monthly account charge to maintain the

account. You often have to buy or lease equipment from the

credit card processor, and there are fees for doing so. However,

accepting credit cards doesn’t have to break the bank for your

business.

According to a 2000 MIT study, credit card

users spend up to 100% more than their cash

using counterparts1.

Small businesses today may find that there are options about

credit card acceptance are decreasing. Customers want to be

able to pay with the convenience offered by credit cards, but it’s

important for merchants to understand what risks come with the

rewards of credit card acceptance.

Understand how processing fees are calculated and focus on

finding the best rate for your business.

Page .08 How Credit Card Processing Works

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1. “Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on

Willingness to Pay,” Drazen Prelec and Duncan Simester, 2000.