Credit to meddygarnet
Credit card processing is a complex procedure which can be broken down in several simpler processes. If you are new to credit card processing and are confused by how it all works, here are some basics you need to know.
Authorization
Authorization is the process that approves a credit card sale. Ultimately, this is accomplished through the credit card approval transaction. The processing company is the “middle man,” between the merchant and the issuing bank. It is the responsibility of the processor to make sure that the transaction is legitimate by doing a series of checks and ensuring the purchase is within the purchaser’s credit limit. Then they route the request to the credit card company and transmit the paperwork requesting funds for the merchant. Third party processing companies are all required by law to be certified and must be connected to all major credit card companies in order to operate.
Fraud
Advertisements
Besides processing authorizations, third party processors also monitor transactions to minimize fraud. Software programs are used to detect when fraudulent charges may be occurring. For example, if a particular credit card was processed in California at noon and then again in Florida an hour later, the software program should pick this up and be able to freeze transactions.
Chargeback
A chargeback is the process of returning a payment to a customer. This can occur for numerous reasons; either the item they purchased was returned or a customer decides that they were not satisfied with a service that offered a money back guarantee. A chargeback can also occur when there is fraudulent activity on a customer’s account. Third party processors usually have a team of people who monitor chargeback activities as they can be costly to the processor. Sometimes a merchant might not be approved for an account if the risk for fraud is too high.
Settlements
Third party processors settle transaction payments for the merchant. When a merchant has a credit card processed, they do not automatically receive the funds. Each transaction must be fully processed and approved before funds are submitted to the merchant. The entire cycle of authorization, approval and the dispersing of funds usually takes between 48 and 72 hours. Generally, once the process is complete, the money is automatically deposited into the merchant’s bank account.
When you, as a merchant, decide to take credit cards as a form of payment you will have the choice of going directly through the banks or through a third party processor. While in the past banks monopolized the market, third party processing companies today are almost always the way to go. Third party processors are usually cheaper and offer more flexible services.
When shopping around for a payment processing solution you will want to compare rates. Many companies charge based on how many transactions you process each month, so this is something you should definitely factor into your decision. Additionally, make sure you check out your company of choice to be sure they are legitimate and have a good reputation in the industry.
