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PRODUCT GUIDE: Credit Card Processing

By Duncan Connor Digital Media Engagement at SwayMaker
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Today’s financial world sails a sea of plastic money. As a consumer, if you don't have active credit cards with a manageable balance and a small monthly credit card payment, you're probably not doing much to improve your credit score, or your rating with the credit reporting agencies. On the other side of the equation, a retailer that doesn't take credit cards is at a competitive disadvantage to merchants that do accept plastic. Whether you accept online credit card payments, or you're a bricks-and-mortar traditional business, there are strict rules for providers of credit card processing services.
 
When a purchaser swipes a credit card through a machine at the store, the machine relays two kinds of information, transaction information about what just got bought, and identity information to a computer somewhere else. The card tells the credit company the name of the customer, card number and CCV number. The same happens when filling out an online form or by swiping the card itself through the point-of-sale terminal at the seller’s location. 
 
Sometimes, the vendor’s bank provides the equipment, allowing a transaction to go straight to a company’s bank. Most of the time, though, a third party will be used for merchant processing. These third parties take the credit card information on the customer's behalf through intricately secured methods and pass it to the vendor or the vendor’s bank. These companies are intermediaries who use high technology to secure the data provided by the customer. Some online services offer a vendor’s Web site a form page in which the customer would be required to enter credit card information. The card processing company would then interact with the credit card company in regards to the transaction.  The payment would then be transferred to the vendor’s account on their behalf, after deducting some fee for rendering the services.
 
What you need to know.
 
A few fraud basics, here. If you conduct point-of-sale transactions using your merchant account, you must verify the signature on the back of the card that a customer offers while making a purchase. If you can’t verify the signature, you need to ask for alternative or additional identity proof. This will help you prevent any fraudulent activity from occurring with your account. You should also know that payment processing companies will charge you if any fraud occurred with your account. A conventional merchant account provider will charge a penalty of about $25 to $45.  It is also essential to process all the transaction on the same day. Fees or interest charged for late processing can add up when processing is done after 24 hours. This may differ from company to company.  
 
Make sure that you swipe the card properly. If the device could not read the credit card number in one swipe you need to swipe it again to prevent any discrepancy. Avoid typing the number manually – this may lead to errors. In case you are forced to manually enter the transaction, make sure to record the accurate address for the card, particularly zip code. If not noted accurately it may increase your transaction cost. It is essential to follow your credit card processing instructions accurately and attentively while doing a transaction.  
 
Buying the hardware.
 
First thing – you need to have a merchant account with your financial institution or other account provider. It’s possible to have a third party work on your behalf while you shun a merchant account, but it’s far more expensive if you’re operating volume is more than a few transactions a month. If you cannot obtain an account for valid reasons, then you may try hiring an ISO – independent sales organization – which may help you to receive payment.    

A retail vendor will need some kind of point-of-sale hardware to manage the selling process operated by a salesperson. This is usually a card swipe machine hooked up to an online computer or the phone system. This system allows the seller to more or less instantly validate the credit card which the buyer uses to make a purchase. To make this work, you also need to have a landline connection or internet connection. You may also require an Internet-based ecommerce solution to competently transfer the details. If you’re using a computer, that computer must be running antivirus and anti-intrusion software. 
Internal software is also required for processing credit cards. There’s a robust secondary market for used equipment, but be sure that the equipment you purchase is compatible with your merchant account vendor.

A retail point of sale terminal – the thing customers swipe their cards through – can cost from $35 to $250 or more. It needs to be able to connect to the Internet or to a phone line, although some versions have a wireless system for transmitting information. Try not to lease equipment if you can – lease terms are often costly, long-term contracts.
  
Who are the best vendors? 
 
Some of our clients would disagree with this answer, but we don’t think there’s a “best” credit card processor. A cop out, sure, but different processors can do a better job under differing circumstances. Plainly, First Data and TSYS remain the largest payment processing companies. If you use a large bank that offers credit card processing services, it’s likely being done by one of these two companies behind the scenes. 
 
For credit card transactions, small businesses come in two flavors – low volume and high volume. A convenience store is a small business with high volume. A construction contractor would have low volume. The convenience store clerk is likely hoping to minimize the cost per transaction, while the contractor would want lower monthly fees to access the service.  
 
Reasons you might want to pay for this service. 
 
Set aside, for a moment, the question of convenience for your customers. You want to get paid, right? Cash flow is the life blood of a small business – any business, actually. Accepting credit cards allows you to receive the revenue of an account receivable immediately. Given the choice between paying with a credit card and deferring a purchase, many of your customers will choose to wait to purchase. That’s money out of your pocket. Compare the cost of managing your credit card receivables to that of the occasional returned check from a client, as a starting point. 

A retail point of sale terminal – the thing customers swipe their cards through – can cost from $35 to $250 or more. It needs to be able to connect to the Internet or to a phone line, although some versions have a wireless system for transmitting information. Try not to lease equipment if you can – lease terms are often costly, long-term contracts.
A competitive rate for processing Internet transactions ranges from 2.10 to 2.25 percent per transaction on average. Retail sales rates run between 1.6 and 1.8 percent. Most services assess a fee of $0.20 to $0.30 per transaction as well, and some tack on an additional “address verification” fee of $0.05 per transaction.
 
What does this usually cost?

A credit card is a powerful tool to help you manage short-term choppiness in cash flow. Put simply, corporate credit cards are an efficient and convenient method of conducting business. Web sites take credit, gas stations take credit, Office Max takes credit. Credit card services can also be a backstop for accounting purposes. There’s nothing like a credit card paper trail during an audit. And don’t underestimate the power of a credit card to convey legitimacy on a business. Theoretically, if you’ve got a credit card, somebody at the bank had to trust you enough to loan you money. These days, that counts for something.
 
 
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