How to Process Credit Cards in a Small Business
Credit card processing is a convenient payment solution for small business. Whether you use a credit card virtual terminal or a terminal on your checkout counter, there is a process to generate the payment.
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Instructions
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Processing a credit card transaction involves recording the card information with a credit card imprinter, a point-of-sale terminal, or an online or virtual terminal. The information is then verified, and the merchant is ensured that she will receive payment for that transaction.
Know the parties involved in processing credit card payments:
• Credit card holder: The customer using the card for payment.
• Merchant: The business accepting payment for products or services from the credit card holder.
• Acquirer: The licensed financial institution or credit card business that receives transactions from the merchant and initiates the interchange via VISA/MasterCard.
• Card association: Payment networks that act as a credit card payment gateway between acquirer and issuer.
• Issuer: The financial institution, or bank, that issued the credit card to the credit card holder. -
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The interchange involves all of these parties and includes the authorization, settlement, and fees of the credit card transaction. The interchange takes approximately three days to complete and consists of several steps:
1. Authorization -- The credit card holder uses the card for payment and, through the terminal, the transaction is submitted to the acquirer. Within a few seconds, the acquirer receives verification based on the validity of the credit card number and available funds associated with it. This process goes through a secure card association network to the issuer, back to the acquirer, and payment is approved at the merchant terminal.
2. Batching -- The merchant groups the daily transactions captured, but not yet settled, and sends them to the acquirer.
3. Clearing -- The transaction details are exchanged between the acquirer and the issuer, which posts the transaction to the credit card holder's account. The transaction is ready for settlement.
4. Settlement - Settlement details include the acquirer funding the merchant for the transaction amount, minus the discount fees for processing the transaction. -
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A chargeback is resolved by the acquirer or the merchant.
1. The credit card holder who disputes a transaction will contact the issuer.
2. The issuer researches the dispute to determine if the chargeback is valid. If not, the dispute is declined and the credit card holder is responsible for the charge.
3. If found to be valid, a temporary credit is issued to the credit card holder. The issuer initiates the chargeback process and obtains credit from the acquirer.
4. The acquirer researches the validity of the chargeback. If the chargeback is invalid, it is declined and returned to the issuer.
5. If found to be valid, the chargeback amount is withdrawn from the merchant's account and the acquirer provides written notification to the merchant.
6. If there was a processing error, the merchant provides documentation to remedy the chargeback. The provided documentation is found to be either satisfactory (and the chargeback is declined and the credit card holder is responsible for the charge) or unsatisfactory (and the chargeback is successful and the process ends).
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Tips & Warnings
Small businesses that perform or process credit card transactions must comply with the payment card data security standard, which can be found at pcisecuritystandards.org.
