Credit Card Processing: The Key to a Competitive Business Strategy
Keeping your business competitive in a
marketplace that is becoming increasingly global is no easy trick. With
so many businesses out there competing for their share of the pie – and
nibbling on yours – it can be challenging to identify a surefire
strategy to keep your business running strong without doing serious
damage to your carefully planned business budget.
But there is one way to help grow your
customer base and increase your profits that’s surprisingly affordable,
and since you’re reading this article, it’s a good bet you know what
that is: credit card processing.
With credit card use becoming more and
more popular among today’s shoppers, it’s surprising that not every
company out there accepts credit cards. In fact, as more Internet and
credit savvy youth enter the consumer population, it’s easy to see why
businesses who want to remain competitive are accepting credit cards to
draw this next generation of shoppers into their flock of loyal
customers. For those businesses that refuse to advance with the tide,
the future can be bleak.
Credit card processing is simple – in
fact, so simple, that’s another reason it can be difficult to understand
why all businesses don’t do it. Processing credit cards begins with
opening a merchant account, a special type of account that is designed
to facilitate and oversee credit card transactions for businesses of all
types and sizes.
Merchant accounts rely on software to
collect and then transmit credit card data to the card issuer. This can
be accomplished via an online website, through a retail establishment’s
point-of-sale, or swipe, terminal, through a mobile account using a cell
phone, or through the business’ computer, as in telephone and mail
order sales. The underlying processes are similar, with a few
In this scenario, a customer swipes his
or her credit card through a swipe terminal, which is connected to the
Internet via a dedicated telephone line. The card information is
collected by the special slot in the terminal, then transmitted via the
phone line to the card issuer.
The card issuer, in turn, checks to see
that the card is valid – that it has not been reported lost or stolen,
and that it has not expired – and checks to see if there are sufficient
funds available in the account to cover the costs of the transaction.
Then it can do one of two things: decline
the transaction, if the card is not valid or if there are insufficient
funds, or approve the transaction. When transactions are approved, a
unique ID number is assigned to the transaction, and the funds are
earmarked – or reserved – for the sale.
The card issuer transmits a code
indicating approval to the business, and the receipt is printed.
Meanwhile, the funds from the credit card issuer are transferred to the
merchant account, which will process those funds, deducting any
transaction or daily fees, and then transfer the remaining money to the
business bank account at the end of the business day.
Because retail accounts require a
face-to-face transaction, they are associated with the lowest level of
risk for fraud, and hence have the lowest fees of all the merchant
These accounts use an online shopping
cart system to collect customer credit card data. That information is
transmitted to the card issuer using a special, secure program called a
gateway provider, which helps speed online transactions and provides
additional security against fraud. The gateway provider can also perform
address verification, allowing an additional level of security for
online credit card transactions.
Some merchant account providers offer
their own gateway service, while others will require you to find a
compatible gateway provider on your own. These types of accounts are
called “real-time” accounts, because the transaction and transfer of
funds occurs immediately, or in real time.
Delayed processing accounts can also be
used for Internet retailers. In these accounts, credit card information
is collected by the shopping cart program and stored until later in the
day, when a business representative gathers that data and then enters it
into the business computer by hand.
In this case, the business computer acts
as a virtual terminal. If you have large volumes of sales and a small
sales staff, delayed processing is probably not a good option. The
primary advantage of delayed processing is their lower cost structure.
Short for mail order and telephone order,
these accounts usually rely on delayed processing systems, but larger
companies may prefer to use the automated real-time system.
This newest type of merchant account
works similarly to the Internet account, but allows credit card orders
to be processed via a cell phone or laptop using a WiFi connection. Many
businesses select more than one type of account to expand the way they
can do business.
With so many options to choose from,
coupled with lower overall fees, there’s no reason not to have a
merchant account. Open yours today.