Gone are the days when customers had to pay using cash only. Thanks to technological advancement, a customer can purchase from the comfort of their homes by use of credit cards. Although it’s a convenient payment method for your customers, it’s important to understand some of the charges associated with its processing.
This article would discuss what you need to know about credit card processing. You’ll learn what credit card processing is, how to reduce associated charges, and much more.
What Is Credit Card Processing?
Credit card processing refers to the series of activities required to complete payments made with a credit card either in person or over the internet. The process includes several parties including:
- Merchant. This refers to businesses accepting payment through credit cards in exchange for goods and services.
- Cardholder. The cardholder obtains the credit card from an issuing institution and uses the account to pay for goods and services.
- Payment processor. This refers to organizations that facilitate credit card processing. The organizations are involved in connecting merchants, acquiring banks, and other parties to complete the transaction. It’s important to understand that these organizations will charge you every time you complete credit card processing. For this reason, you should conduct extensive research to find an organization with a great resource to simplify credit card processing.
- Acquiring banks. Also referred to as merchant’s banks, these bodies hold the merchant’s money acquired from a purchase. In other words, the merchant’s bank will hold the funds once the payment is authorized and deposit them into the individual bank account.
What Charges Are Associated With Credit Card Processing?
The following are some of the charges associated with credit card processing:
The charges are determined by how the credit card is processed. For instance, a qualified rate is charged when the customer swipes the card through a machine, usually the cheapest.
This refers to charges that a merchant should pay for every credit card transaction. It’s important to understand that the type of purchase will affect the interchange fees. For instance, food purchases will have different fees as compared to car rentals.
Reducing Credit Card Processing Fees
Consider using the following ways to reduce charges associated with credit card processing:
Capture More Customer Data
As a business owner, ensure you capture the customer’s full billing address. This will help you avoid high interchange fees, especially on online purchases. It’s important to understand that interchange fees comprise a large part of your processing fees.
On the other hand, obtaining level two and three data is crucial if you’re dealing with other enterprises. This includes tax ID, invoice number, and any other relevant information which can help reduce the interchange fees. It’s important to understand that using level two data will greatly lower your processing cost than using only one basic piece of info such as billing addresses.
While you can process this information manually, you can use payment getaways to automate the process to make it easier for you to qualify for the least credit card processing fees.
Follow Best Practices To Reduce Fraud
It’s important to understand that you may end up paying more processing fees when you manually input your customer’s credit details. There are higher chances of fraud occurring; thus, enterprises have to protect themselves from this risk by charging more.
There are several practices you can utilize to avoid higher charges associated with fraud prevention. They include:
- Swipe on every charge. It’s important to understand that you’ll end up paying more if you key in customers’ information due to the mentioned fraud prevention. Thus, ensure that customers swipe the card when making a purchase.
- Utilize an address verification system (AVS). This system is commonly used in an online purchase to verify the information on the credit card. In return, you’ll be rewarded a lower processing fee, improving your profit margin.
Negotiate With Credit Card Processors
One of the easiest ways to negotiate with a card processor is to ensure you’re a merchant that adds value. You can use your transaction volume as leverage when negotiating with the vendor. The more you sell, the more transactions your vendor process, making it easier for you to negotiate with the vendor.
It’s important to have a reputable credit card processor. This is because a reputable vendor will make it easier for you to understand markup fees, ties, and any other associated charges. It’ll not only give you an upper hand in the negotiation process, but you’ll avoid being overcharged.
As discussed above, technological advancement has simplified how humans pay for goods and services. Credit cards changed how people purchase worldwide. There are charges associated with credit card processing. They include tiered, interchange, and much more charges. Some of the ways you can reduce these charges include capturing more customer data, compliance, and negotiating with credit card processors.