So, you’ve finally bitten the bullet and decided to accept credit cards in your small business. Before you become overwhelmed by the sheer scope of the choices and options available to you, it would behoove you to take a few minutes to learn some payments terminology. Once you do, you’ll be in a better position to make the decision that is best for your company.
Before a payment at your point-of-sale terminal, smartphone reader, virtual terminal, or ecommerce shopping cart can go through, its authenticity needs to be verified. The authorization process allows a card’s validity to be confirmed while simultaneously determining if the buyer has sufficient funds to pay for their purchase. Although this process usually only takes seconds, it involves several steps:
- The merchant collects payment information from the customer, whether online, over the phone, or in person.
- The credit card processor collects the payment information and forwards it the customers card network (such as Visa or Mastercard).
- Once the card network receives the payment information, the request is forwarded to the customer’s bank or card issuer for approval.
- The card issuer or bank approves or declines the transaction. The card payment network is then notified and word is sent to the processor to complete the transaction. If approved, you (the merchant) will receive a numeral authorization code.
Processing costs and fees.
Whenever you conduct a payment transaction, your merchant services provider will charge fees – usually about two percent of the purchase amount. Fees can fluctuate depending on the nature of your business, the type of transaction (if the physical card is present, online, phone, or mail order), credit card type (basic or rewards), and your processing volume. While your provider will charge fees on each transaction, said fees may vary from one company to the next. Note that by way of contrast, service and Interchange fees that are paid to the credit card companies are always a set amount.
These occur when a customer disputes a charge after the payment has been authorized. The customer is fully reimbursed and you as the merchant are charged a fee.
Chargebacks are inevitable once in a while, but they should be minimized. Make your products and services as transparent as possible and be sure that your return policy is clearly displayed. Always be available to answer customers’ questions and concerns and try to resolve any disputes before the customer goes to their bank.
Finally, take steps to reduce the chances that you will be the victim of fraud. Verify customer addresses with an Address Verification System (AVS) and require that customers enter CVC2 and CVV2 numbers. Also, be sure that all of your systems are upgraded to the most recent security levels.
Taking all these aforementioned steps will help you avoid the long-term consequences that come with frequent chargebacks.
Congratulations on entering the world of electronic transactions! While the lingo can seem pretty unapproachable at times, be patient with yourself and don’t hesitate to ask questions of your merchant account provider. Before you know it, you’ll be an expert!