- Credit Card Processing Basics
- General Processing Questions
- General Industry Terms to Know
- The Journey of a Transaction
- Retail/Restaurant Processing
- MOTO (Mail Order/Telephone Order) Processing
Do's and Don'ts of Credit Card Processing
- Verify that the person who is providing the credit card and expiration date is the person the card was issued to.
- Do everything possible to not put through duplicate transactions (to prevent Chargebacks and disputes).
(The following things can potentially lead to fines for you or to your Merchant Account being closed!):
- Don’t run your own credit card through your merchant account or try to use it to provide cash to yourself or your friends.
- Don’t enforce credit card usage minimum amounts on transactions lower than $15. Credit Card regulations mandate that if you are to accept credit cards, you must accept them for any amount (above $15).
- Don’t charge additional fees to your customers to offset the cost of accepting the credit card.
- Don’t Split transactions into smaller ones in an attempt to bypass limits placed on your account by the Merchant Service Provider.
- When and How do I get paid? Payments stemming from transactions from Visa/Mastercard/Discover will generally be received within 2-3 business days. American Express typically takes up to 5 business days. Please see your Merchant Service Provider for further details on this.
- What Card Types can I accept? This depends on your Merchant Service Provider. Your account will always be set to accept Visa, Mastercard, and most likely Discover. If you need to accept Amex and cannot currently, please contact your Merchant Service Provider
- Can I accept Debit or Gift cards? If you are set up only for Credit Card Processing, and are not set up with a PINpad, then you can still accept any debit or gift cards as credit cards if they have a corresponding Visa/Mastercard/Amex/Discover logo on them as long as you can accept that credit card type normal
- Are there any limits to how high of an amount I can capture on an Authorization Only transaction? There is an upper limit of any captured transactions being no more than 20% of the authorized amount. Example: you authorize a transaction for $100, when you go to capture the sale, the highest you can capture it for would be $120. If authorized higher than the 20% limit, there is a chance the Cardholder’s bank or Cardholder themselves will dispute the transaction and cause a chargeback.
- Merchant Service Provider - Merchant service providers are responsible for setting up your account on the front and back end to handle credit card transactions, as well as acting as the median for communication and relationships between the merchant and the card associations, processors, and merchant bank.
- Merchant Account - A Merchant Account allows you to accept Credit Card payments. A merchant’s credit score is often evaluated for approval of the Merchant Account and often determines the rates and limits placed upon it.
- Payment Gateway - Payment Gateways transfer payment data from the Merchant to the issuing bank for Approvals as well as to the Processor for deposits to the merchant. Gateways are used for most POS (Point of Sale) systems, processors, banks, and merchant types.
- Processor (Front-end and Back-end) - Overall, they handle the transmission of Payment data that is necessary to authorize and settle credit card transactions. The front end processor handle up front credit authorization, the connectivity to the card associations and network authorization, while the back end processors receive and forward the settlement batches to the issuing banks.
- Merchant/Acquiring Bank - The financial institution that provides Merchant accounts. They also handle acceptance and payment of the credit card transactions. Similar to a Merchant Service Provider.
- Batch - Collection of completed transactions for the day. It is important that this is submitted every day to a
- Issuing Bank - The bank of the Cardholder.The Issuing Bank as well as the Acquiring Bank share liability for non-payment by the merchant, according to rules that were established by the card association brand. Card Association - The network of Issuing and Acquiring banks that process payment cards of a specific Credit Card brand.
- AVS (Address Verification System) - System used to verify street address number/ zip code, or both to verify the person claiming to own a creit card.
- CVV - The card security code (CSC), sometimes called card verification data (CVD), card verification value (CVV or CVV2), card verification value code (CVVC), card verification code (CVC or CVC2),verification code (V-code or V code), card code verification (CCV), or signature panel code (SPC)are different terms for security features for credit or debit card transactions, providing increased protection for the merchants against credit card fraud.
The rates and fees you pay for your credit card processing are assessed by your merchant service provider. Please see them for further information on this.
- Interchange Fees - The major card associations charge this for processing each transaction. The amount of the fee is based on how the transaction is processed and on how the Merchant Account is setup with the Merchant Service Provider. Generally, it consists of a percent of the total sale in addition to a flat fee. This cost is for the processing of the transaction in addition to depositing the funds into the Merchant’s bank account.
- Qualified Rate - This rate is applied when the Merchant performs the transaction using an approved processing solution with either a Debit Card or Personal Credit Card. This is also usually the lowest rate a Merchant can receive, and is the rate normally quoted to Merchants.
- Mid-Qualified Rate - This rate is generally applied when a transaction does not qualify for the lowest rate. This is usually applied to certain manually entered transactions, Rewards or Business cards.
- Non-Qualified Rate - This rate is applied when the transaction does not quality for the above two rate types. This may apply when a credit card is manually entered into a terminal (versus swiped), when Address Verification/CVV is not present, or the authorization is not settled within 48 hours (typically).
- Downgrades - This occurs when one or more of the qualifying requirements for a transaction is not met, then the transaction rate is downgraded to a higher amount, due to increased risk exposure. Some of the most common reasons for a transaction being downgraded is missing or invalid data, missing address verification information, being manually keyed, corrupted swiped data, and not batching out the transaction within 48 hours.
- Chargebacks- A chargeback is issued when a Customer disputes a transaction. When a customer disputes a transaction, funds are automatically debited from the Merchant’s bank account. Cardholders have at least 180 days to issue a chargeback. In some cases they have longer. If there is delayed delivery or a warranty of some sort the 180 days doesn’t start until after the expected delivery date. It should never be less than 180 days though. The Merchant can fight the chargeback by supplying supporting documentation, and in the cases where the Merchant wins the chargeback case, they will receive the funds back. There is a chargeback fee that is assessed to the merchant by the Merchant Account Provider regardless of the outcome of the dispute though.
- Address Verification Fee (AVS Fee)- This is for transactions where the card is not present, you may be required to verify the cardholder’s address to qualify for a better processing rate. This is a flat fee that is charged by the Processor.
- Transaction Fee - A flat fee fee to cover the cost to transmit data to and from the Cardholder’s Bank, the Acquiring Bank as well as the Merchant’s bank.
First the Merchant submits the credit card transaction for authorization. It is sent via the credit card terminal or gateway to the Cardholder’s bank for Approval. After the day ends, the merchant sends their batch to the Processing Bank through the gateway or terminal. The processing bank then collects the money from the Cardholder’s Bank account, and deposits the funds into the Merchant’s bank account.
- What is Retail Credit Card Processing? This is when your transactions are done in a face to face environment and the card is swiped through either a credit card terminal or a Point of Sale (POS) system, in a fixed location (like a retail storefront).
- What are Card Present transactions? This is when you swipe a card through a POS or terminal with the cardholder present.
- What precautions do I need to follow?
- Always verify the ID of the person providing the card for use. If the Credit/Debit card does not have the picture of the cardholder, verify by checking their ID or Driver's License. Never accept a card if the person who owns it is not present.
- Always check the back of the card for the signature of the cardholder as well.
- Always obtain the cardholder's signature on the Merchant Copy of the credit card receipt.
- Some potential red flags to watch out for:
- Purchase a large amount of merchandise without regard to size, style, color, or price.
- Do not ask questions on major purchases.
- Try to distract or rush you during the sale.
- Make purchases and leave the store, but then return to make more purchases.
- Make large purchases just after the store opens or as it is closing.
- Refuse free delivery for large items.
What is MOTO processing? If you run a Mail Order or Telephone order business, then you participate in MOTO processing. This means that you accept payments without the credit card or customer are not physically present at the time of sale. This is also known as Card Not Present Processing. There is a bigger risk when running MOTO sales. What can I do to protect myself and my business? Always collect billing information from your customer, including the Billing street address and zip code, and CVV code and submit this information in the manually entered transaction (whether through a terminal or POS system). Other things to watch out for:
- An anonymous e-mail, or calls through TTY
- Mismatched shipping and billing addresses.
- Foreign orders or shipments.
- All lower case information.
- Unusually large orders, rush orders or high ticket orders.
- Multiples of the same item.