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Credit card processing is a vital part of doing business in today’s world. If you’re not already accepting credit cards, you could be missing out on a lot of sales. And if you are accepting credit cards, but you’re not using the best possible processing solution, you could be losing money on every transaction.
In this guide, we’re going to cover everything you need to know about credit card processing. We’ll start with the basics of how credit card processing works, and then we’ll discuss some of the different options available to businesses. We’ll also talk about how to choose the right processor for your business, and we’ll answer some common questions about credit card processing.
By the end of this guide, you should have a good understanding of how credit card processing works, and you should be able to confidently choose the right solution for your business. Let’s get started!
How Does Credit Card Processing Work?
At its most basic level, credit card processing is simply the process of accepting credit cards as payment for goods or services. When a customer pays with a credit card, the credit card processor will approve the transaction and then forward the funds to the merchant.
There are three main players in every credit card transaction: the cardholder (the customer), the merchant (the business), and the credit card issuer (usually a bank). In most cases, there is also a fourth player involved: the credit card network.
The cardholder pays for goods or services with a credit card. The merchant submits the transaction to the credit card processor. The credit card processor contacts the credit card issuer to get approval for the transaction. The credit card issuer approves or declines the transaction. If the transaction is approved, the funds are transferred from the cardholder’s account to the merchant’s account.
That’s the basic process of how credit card processing works. Of course, there are a lot of different options and variations that we’ll discuss later in this guide, but that’s the basic idea.
Now that you know how credit card processing works, let’s talk about the different types of processors available.
Types of Credit Card Processors
There are two main types of credit card processors: merchant account providers and payment gateways.
Merchant account providers are banks or other financial institutions that provide businesses with the ability to accept credit cards. A merchant account is simply a bank account that’s used to hold funds from credit card sales. When a customer pays with a credit card, the funds are deposited into the merchant account, and then the merchant can withdraw the funds at any time.
Payment gateways are software solutions that provide businesses with the ability to accept credit cards. A payment gateway is a piece of software that connects a business’s shopping cart to the credit card processor. When a customer pays with a credit card, the payment gateway processes the transaction and then forwards the funds to the merchant.
There are pros and cons to both types of solutions. Merchant account providers typically have lower transaction fees, but they also require businesses to set up a separate bank account. Payment gateways don’t typically have setup or monthly fees, but they generally have higher per-transaction fees.
Which type of solution is right for your business depends on a number of factors. In general, businesses that process a large volume of credit card transactions will save money by using a merchant account provider, while businesses that process a small volume of credit card transactions will save money by using a payment gateway.
Now that you know the different types of credit card processors, let’s talk about how to choose the right one for your business.
How to Choose a Credit Card Processor?
There are a few things you should keep in mind when choosing a credit card processor. First, you need to make sure that the processor can support the type of business you have. For example, if you have a brick-and-mortar store, you’ll need a processor that can support in-person transactions. If you have an online store, you’ll need a processor that can support online transactions.
Second, you need to make sure that the processor can support the type of credit cards you want to accept. For example, if you want to accept American Express, you’ll need a processor that has a relationship with American Express.
Third, you need to make sure that the processor offers the features and options that you need. For example, if you need recurring billing, you’ll need a processor that offers that feature.
Finally, you need to make sure that the processor is reputable and trustworthy. The best way to do this is to read online reviews and compare pricing.
Now that you know how to choose a credit card processor, let’s talk about the different types of fees you’ll be charged.