REFERENCE
What is credit card processing?
Your customer taps a card and the sale is done. Between that tap and the money reaching your account, four things happen, and each one costs you something. Here is what they are.
What happens when a card is tapped
- 01
Authorization
Your point-of-sale system or terminal contacts the acquiring bank - your bank - to ask permission for the transaction. That means verifying the card details, confirming the funds are available, and checking for fraud alerts. Your bank then seeks approval from the card issuer to confirm the funds are good.
- 02
Batching
Once authorized, your POS system groups transactions together. Your customer's payment joins a batch of others headed for the same destination: your bank account.
- 03
Clearing and settlement
The acquiring bank sends the batch to the card networks - Visa, Mastercard and the rest - which route them to the issuing bank that gave your customer their card. The issuing bank verifies each transaction, and once everything checks out the funds move back toward your account.
- 04
Funding
The acquiring bank deposits the settled funds into your bank account. Across the industry this typically takes a few days. With Payably you are funded the next day.
Where the money goes
Processing fees are charged at different points in that journey. Two of the four are set by the card networks and cannot be negotiated by anyone.
Interchange fees
Charged by the card networks, interchange fees are a percentage of the transaction value plus a flat fee. They are paid to the issuing bank as compensation for assuming the risk of extending credit to the cardholder. They are not negotiable, and they vary by card type and transaction type.
Assessment fees
Also charged by the card networks, assessment fees are based on the volume of transactions processed and go toward maintaining and developing the network infrastructure. Like interchange, they are not negotiable.
Acquiring bank fees
Acquiring banks charge their own fees for processing transactions on your behalf. These may include authorization fees, batch fees, and monthly service charges.
Payment processor fees
If you use a third-party payment processor, you may pay additional fees for the technology and convenience it provides. These sit on top of interchange and assessments rather than replacing them.
What it means for a small business
Retail
In a storefront, efficient card processing speeds up checkout and improves the customer experience. High processing fees eat into margin, which makes pricing and cost management worth paying attention to.
Mail order and telephone order
If you take orders by phone or mail, reliable processing for card-not-present transactions is essential. Fraud detection matters more here, because the card is never physically checked.
eCommerce
Online, card processing is the backbone of every sale. Protecting customer data is not optional - it is what makes people willing to buy from you a second time.
Card processing is the plumbing underneath every sale you make. Knowing which fees are negotiable and which are not is what lets you tell a fair quote from a bad one.