12 Things Merchants and Customers Must Know About Credit Card Processing


Businesses today are at an advantage if they accept debit and credit cards. This method of processing payments increases sales, delivers payment flexibility, and generally promotes business success. Credit card processing is somewhat complex, and here are some essential details to know.

A Monthly Payment Structure is Better than a Long-Term Contract

Contractual credit card processing agreements have their setbacks. For example, some payment processing companies have early termination charges for early cancellation and others for liquidated damages. 

To avoid these high charges, a business owner may be forced to keep using a service they are not happy with. However, business owners who use month-to-month services can switch easily.

Interchange Fees Differ

Credit card issuers charge businesses transaction fees whenever customers make purchases using credit or debit cards. These fees are usually percentages and may appear as single or bundled bill amounts. They vary depending on factors like the card network (Mastercard, Visa, American Express), merchant category code, payment processing method, and card type.

Recurring Fees are a Thing

Processors use these fees to make an extra profit, but they are not required to accept credit card payments. They may be charged for statement administration costs, failure to meet monthly minimum transaction volumes, next-day funding, batched credit card transactions, and generation of Internal Revenue Service (IRS) reports.

Merchants should be fully aware of applicable charges to avoid paying more than they should.

Customer Convenience is Mandatory

Credit card payments are accepted primarily through POS systems (traditional or mobile) and online processors. Merchants should offer convenience through various payment options like credit and debit cards, virtual terminals, Near Field Communication for smartphones and other devices, online shopping carts, and API technology for online payments.

Credit Card Fees are Negotiable and Avoidable

Merchants can make their case with high transaction volumes and negotiate for reduced rates. More transactions per month typically mean more value from the merchant. Merchants can also impose surcharges to avoid the fees, but they must follow surcharge regulations.

PCI Compliance/ Customer Security is Not Optional

The Payment Card Industry (PCI) is a set of rules designed to protect sensitive customer information. Failure to be PCI compliant risks hefty monthly fines and may cause a business to lose privileges to process credit card payments. 

Older Technology Can Cause Low Authorization Rates

Generally, older technology is associated with failure to address credit card processing necessities like poor fraud screening and sometimes poor data processing. Gateways that do not use updated technology are less likely to have payment routing or retry systems. Failure to address these issues usually results in low authorization rates or declines. 

Non-Present Card Transactions are Costlier

If a customer is available to present their card for payment, such a transaction is considered less susceptible to fraud than one where the customer and card are not present, like one done over the phone. Risky transactions mean more transaction costs.

Mismatched Network and Transaction Tags Affect Authorization Rates

If a business’s network tag does not align with the type of credit card transaction, the processing bank may decline the transaction. Suppose a business deals with recurring monthly payments but tags them as e-Commerce transactions; they can be declined because of possible fraud. The payment provider a business uses should flag transactions accordingly for accurate processing.

The Type of Business Operated Determines the Kind of Payments to be Processed

Businesses solely online will have clients make purchases mainly via credit or debit cards or even set up an e-Commerce app to enable customers to pay digitally. Conversely, physical stores may handle credit and debit cards and gift and prepaid cards. They may need POS systems and mobile devices to process payments.

Domestic and International Processing Systems Differ

Merchants who want to appeal to global markets must provide more ways to pay. For example, Amex, Mastercard, and Visa are not prevalent in some markets outside North America. Merchants in these markets might need to combine local and cross-border acquiring to have favorable authorization rates. 

Declines may result from currency mismatches and transactions with currencies that have fluctuating rates. If a cross-border payment is not routed to a local bank in a particular region, it may be flagged for a decline. Business operators should do their best to have local currencies widely available.

Page Designs Affect Sales

Yes, page designs impact your sales. Customers will likely be more comfortable and spend more when using large devices. Nevertheless, merchants must have dedicated interfaces on every device, whether a computer or a smartphone, to ensure customers do not struggle to view payment options.

Final Thoughts

Credit Card processing is a complex process for the parties involved. Merchants and customers may have an idea of how the process works or how to pay responsibly, but with the ins and outs highlighted above, they can stay more informed.