The Credit Card Processing System
Retail/Storefront Credit Card Processing
Internet Credit Card Authorization
Mail Order/Telephone Order Credit Card Processing
Trust and the Credit Card Processing System
Billing Information and Supplies
Description and Explanation of Discount Rates, Transaction Fees, and Other Fees
Credit Card Processing Equipment and Credit Card Processing Software
There are five main players in the credit card processing system. They are the:
1. Credit card issuing bank
2. Consumer
3. Merchant services account
4. Acquiring processor/acquiring bank
5. Merchant bank
The credit card processing system has been carefully set up to insure that all parties involved will be able to take advantage of this efficient way of doing business. The credit card authorization process is basically the same whether your business actually swipes or inserts the credit card through the credit card terminal, keys in the credit card on the pad of the credit card machine, or accepts the consumer’s credit card online. The main difference is the variable levels of security involved with the different ways to process credit cards. The following is a step by step explanation of how credit card processing works.
If the merchant is a mail order/telephone order company, either scenario can be used for credit card processing. If the merchant uses credit card processing hardware, instead of swiping the credit card or inserting the EMV chip through the credit card terminal, they can key in the information. If the merchant prefers to use software for credit card authorization, then this can be done using a virtual terminal. A virtual terminal will allow the merchant to process credit cards over the Internet by securely logging in through the gateway provider and imputing the credit card processing criteria manually.
The credit card authorization happens when the issuing bank approves the credit card transaction. A credit card authorization number is issued to the merchant services account and payment of goods/services is guaranteed as long as:
After the credit card authorization and the goods and services are rendered, a credit card deposit goes into the merchant’s account and a debit to the cardholder’s credit line is applied. With COCARD’s credit card processing service, this will happen in no more than 72 hours. Usually the authorization and deposit happen at the same time. But, if for some reason the goods/services are delivered at a later date, then the merchant services account must conduct a separate deposit transaction.
A credit card sales draft must be completed and imprinted for all credit card sales. The credit card sales draft is a legal and binding contract and serves to protect all of the parties involved in the credit card processing system. If the consumer’s credit card is swiped or inserted through a POS credit card terminal, then the credit card printer should print out a hard copy of the credit card sales draft . If you are a mail/telephone order or Internet based company, your credit card sales draft will be electronically produced.
A manual imprinter should be used if:
The following should be on all credit card sales drafts:
The credit card authorization system is designed to protect everyone involved in a credit card transaction. The system protects:
Chargebacks are rare, but they can be damaging to your merchant services account.
Any fees for credit card processing or charges for supplies for credit card equipment will be debited to the merchant services account on a monthly basis. Also, each card association will send out a monthly statement.
The discount rate is a percentage of each credit card transaction that is charged to the merchant services account by the credit card processing company. The discount rate varies depending on each merchant services account. Higher risk merchant services accounts have higher discount rates. For example, there are swiped credit card rates and keyed credit card rates.
Swiped rates are for storefront merchant accounts that physically handle the customer’s credit card, such as swiping it through the credit card terminal or inserting the EMV chip. This form of credit card processing is less susceptible to fraud so it carries the least expensive discount rate.
If a merchant account does credit card transactions through the mail, on the telephone, or over the Internet, the risk is higher because:
The discount rate for this type of merchant services account, because of the risk involved, will be slightly higher.
Rates have declined over the years as technological advances have made credit card acceptance more efficient and less susceptible to fraud. The first credit cards issued were Diner’s Club cards for use in New York City restaurants, and then Visa popularized credit card acceptance. In the beginning, there were no means of protecting merchants and issuers from fraud. A consumer would go into a place of business, present their credit card, and the merchant would go to a magazine-like publication to determine if that credit card account was legitimate. With the advent of the magnetic stripe and electronic data capture, the ability to detect fraudulent activity and delinquent accounts was greatly enhanced.
The reason for the difference in rates is because the merchant services account receives payment from the credit card processing company before they receive anything. The credit card processor is taking a risk, trusting that the merchant will provide the goods and services that were promised when the credit card transaction took place.
A merchant account’s discount rate can be negotiable if the volume of credit card transactions warrants special attention. Be aware that a lower or higher discount rate is not a good indicator of the quality of service from a credit card processor. Always investigate all aspects of a credit card processing company, and never go with someone just because they have low rates.
The transaction fee is a separate charge from the discount rate.
Once your merchant services account is approved, your credit card equipment will be programmed and shipped. All credit card equipment will be shipped by ground unless other arrangements are made by the merchant.
Customer service on credit card processing equipment and credit card processing software is available 24 hours a day, 7 days a week. Your hardware replacement will be dependent upon the manufacturer’s warranty. COCARD Merchant Services stands behind all of its credit card equipment manufacturers by offering free replacement for as long as you process credit cards with COCARD Merchant Services if there is a defect from manufacturing. COCARD Merchant Services will overnight replacement equipment and repair and return your credit card equipment.
Supplies needed for credit card equipment such as paper, ink ribbons, drafts, etc., are available through COCARD Merchant Services.
If you have a retail, restaurant, mail-order/telephone-order or e-commerce business that wishes to accept credit cards directly as a form of payment, you need a merchant account. A merchant account allows a business to accept credit cards, EMV, debit cards, gift cards and other forms of payment cards. The merchant account provider handles the transfer of funds between the customer making a purchase and the merchant providing goods or services. This is also widely known as payment processing or credit card processing.
If you have existing equipment, we can often reprogram your current terminals so that they can be used with your new processing account.
COCARD prides itself on honest, straightforward pricing and competitive rates. We assess a Statement Fee and a low monthly minimum; we do not charge our merchants batch fees or annual fees.
No, COCARD does not charge an application fee.
COCARD Merchant Services has a 98% approval rate on merchant accounts, and our goal is to get you accepting credit and debit cards as quickly as possible. Usually, approvals take place within 24-48 hours, but delays can occur if our underwriting department needs more information about a business. Your account manager will stay in touch with you throughout the application and setup process and will work with you to resolve any issues with your application.
Absolutely. Your funds will be deposited directly into your local business account, allowing you to maintain your current banking relationship.
Chargebacks occur when a customer disputes a charge on their credit card statement. These are commonly due to unauthorized purchases or dissatisfaction with a product or service. Merchant banks issue chargeback fees to cover the retrieval of information in the dispute; if it is determined that the customer has a valid claim, the customer will be refunded and the merchant’s account will be debited.
Whether it is more beneficial to run a debit card transaction as an online or an offline debit varies depending on the type of merchant account and on the amount of the ticket. Generally, online debit is more cost-effective with higher ticket amounts; however, the more that ticket amounts climb, the more likely customers are to pay for purchases with their credit cards. Also, if merchants have PIN pads out on their counter, more customers will run their cards through using their PINs on low-ticket, higher-cost transactions, negating the benefits of the lower prices on the bigger ticket items.
No, COCARD can access reporting features online for real-time transaction histories and other account information.
Interchange fees, which are posted on the Visa and MasterCard websites, range from less than 1 percent to 3 percent plus a per item fee for various transaction types. Rates vary based on the type of industry, the type of card used and the type of sales transaction. For example, sales conducted over the phone present a higher risk of fraud than in-person transaction, so the rates are higher. Credit cards present more risk than debit cards, and rewards cards are even higher still.
Because interchange fees are the fees that the card associations charge credit card processing companies, your costs will also include additional fees from your payment processor.
Visa and MasterCard set the rates for interchange.
Twice a year, usually in April and October, Visa and MasterCard review their interchange rates and decide whether or not to revise their fee structures.
There are expenses associated with accepting cash as well. Cash transactions carry the risk of human error or theft; cashiers must count and make change accurately, and merchants must transport deposits to the bank or use a safe. Also, accepting credit card payments can increase sales by enabling customers without cash to make purchases. Reputable credit card processing companies allow you to reduce your costs and enjoy the benefits of processing credit card payments.
EMV card readers cost between $400 and $700 but are often discounted through payment processors such as COCARD, where it might even be free.
A processing gateway is a web-based service that authorizes payments for e-businesses and online retailers as well as brick and mortar businesses.
This depends upon your business type. Many COCARD customers process payments through a virtual terminal, using only a computer and internet connection. If you do need to purchase a Point of Sale system, credit card machines or other equipment, COCARD’s dedicated account managers will work with you to determine your business needs and recommend the best solutions.
COCARD charges extremely competitive rates. If you are currently processing credit cards and would like a complete complimentary rate analysis, we’ll ask you for three months of your current processing statements.
Getting started is easy! A member of the COCARD support team will walk you through setup and run a test transaction.
Yes, toll-free numbers for authorizations and settlements are available 24 hours a day, seven days a week.
Along with accruing fees, excessive chargebacks may lead to the closure of a merchant account. The best strategy is to avoid them altogether! There are ten basic things that merchants can do to protect themselves when it comes to credit card processing. They are:
With Internet orders, the merchant should always make sure that their Internet software asks for:
There are no interchange fees with American Express and Discover because in both cases, the card issuer and the acquiring bank are the same thing. However, American Express and Discover both charge merchant fees, which are often substantial.
This is when liability for card fraud switched from the banking institutions to merchants. Starting October 1, 2015 businesses that have not updated their terminals to accept EMV equipped cards will now be held responsible for fraudulent swiped transactions.
Historically, the United States has been typically been using cards with a magnetic strip on the back. These cards are swiped through a card reader and contain static financial information that can be easily duplicated by card readers. EMV cards, on the other hand, contain a microchip that produces a new code with each transaction, preventing fraudsters from gaining access to sensitive data on the card. EMV cards are therefore more secure than magnetic strip cards, and are responsible for a worldwide decrease in fraud.
To accept credit cards online, you can process through an online gateway or directly from your website using a shopping cart.
Most submitted applications are set up within 24 to 72 hours.
Processing fees vary based on the type of industry, the type of card used and the type of sales transaction – for example, sales conducted over the phone present a higher risk of fraud than in-person transaction, so the rates imposed by the credit card associations are higher.
The application process is simple and takes just a few minutes. When you call 800.317.1819, one of our account managers will ask you for information about your business, including its legal name, tax ID, physical business mailing address; legal owner/principal information; and estimated card transaction information. You’ll then fax in a few pieces of supporting documentation to verify the information you have provided, and in a few days you will be ready to process!
Call 800.317.1819 at any time to speak to your account manager. If necessary, we’ll connect you to a member of our expert technical support team.
When you submit your merchant application, let your COCARD account manager know that you’d like to accept American Express and Discover, and we will apply for a merchant ID on your behalf.
With online debit transactions, customers enter a 4 digit PIN number into a PIN pad at the point of sale. The transaction is routed through the debit network rather than the Visa/MasterCard network, and the funds are immediately debited from the cardholder’s checking account. Merchants who do not have PIN Pads can still process debit cards as off-line debit transactions. Off-line debit does not use a PIN number. Transactions are processed through the Visa/MasterCard network and the funds are debited from the cardholder’s checking account.
PCI Compliance refers to the Payment Card Industry (PCI) Data Security Standards (DSS) imposed by Visa, MasterCard, American Express and Discover. This is a mandatory security program from the credit card associations put in place to protect your customers’ account data, and to protect your business from serious security breaches and damages.
PCI compliance is mandatory for every merchant accepting Visa and MasterCard. If you are not PCI-compliant, you will have to pay monthly non-compliance fees. If you happen to experience a data security breach while not complying with the PCI-DSS standards, you would also be subject to additional fines from Visa and MasterCard in addition to the expenses resulting from the security breach. As a service to our merchants, COCARD partners with a Qualified Security Assessor/Approved Scanning Vendor who will provide quality security assessments at a low cost.
Because interchange fees are set by Visa and MasterCard, they are not negotiable. However, you should examine your credit card processing agreement to ensure that your merchant account provider is offering you the best possible terms.
You can also lower the cost of credit card processing by taking steps to eliminate the risk of fraudulent transactions – doing so will help you receive the lowest, or “qualified” interchange rates whenever possible. For example, you should always swipe a credit card during card-present transactions; if you have to key in a card, always use Address Verification Service (AVS). Be sure to batch daily as well: your credit card processor is charged a higher interchange rate for transactions that are submitted more than two days late.
Another way to reduce the risk of fraudulent transactions, is by accepting EMV cards. Companies who have not adopted the EMV technology will now be held liable, instead of the banks. Therefore, by routinely accepting EMV equipped credit cards, your business can prevent losses that would be the result of being liable for a fraudulent charge.
It is an acronym for its developers: Europay, Mastercard, and Visa.
EMV will benefit your business in three ways. First, the risk of chargebacks from fraudulent transactions is greatly reduced. In the past, banks bore the financial weight for fraud. Now, companies that have not adopted EMV technology will be held accountable for fraud. Adopting EMV technology will protect your business from costs associated with fraud. Second, because technology keeps evolving, it is important to keep up. Most hardware that accepts EMV will also allow your business to accept payment alternatives such as contactless pay. Third, you can accept payment from foreign visitors. Much of the world only uses EMV technology.
A2A: account to account
AAV: accountholder authentication value
ABA: American bankers association
ACH: automatic check handling
ADA: Americans with disabilities act
ADC: account data compromises
ADSL: asymmetric digital subscriber line
ADV: automated accounting device
AES: advanced encryption standard
AF: audio frequency
AFC: automatic fare collection system
AFDC: aid for dependent children
AMEX: American express
ANSI: American national standards institute
A/P: accounts payable
API: application program interface
APP: application
APR: annual percentage rate
APTA: American public transportation association
A/R: account receivable
ARC: accounts receivable entry
ARN: acquirer’s reference number
ARU: audio response unit
ASCII : American standard code for information interchange
ASP: application service provider
ATM: automated teller machine
ATM: asynchronous transfer mode
AUTH: authorization
AVS: address verification service
BAI: bank administration institute
BASE I: bankcard system experiment I
BATS: batch transaction authorization system
BBS: bulletin board system
BD: baud
BEA: bureau of economic analysis
BID: business identification
BIN: bank identification number
BP: basis point
BPM: business process management
BPP: bill payment provider
BPSP: bill payment service provider
BSP: bill service provider
BW: bandwidth
CA: certification authority
CAP: central affiliated property
CAS: card authorization system
CAV: cardholder authentification value
CAVV: cardholder authentification verification value
CBT: computer based training
CCD: cash concentration disbursement
CDMA: code-division multiple access
CDPD: cellular digital packet data
CD-ROM: compact disk read only memory
CE: connection endpoint
CEBP: council for electronic billing and payment
CFR: code of federal regulation
CHECK 21: check truncation act for the 21st century
CHIPS: clearing house interbank payments system
CIE: customer initiated entry
CIF: central information file
CIF: card in force
CIP: customer identification program
CISP: cardholder information security program
CLM: client management
CMIA: cash management improvement act of 1990
CNP: card not present
COR: automated notification of change
COT: consumer operated terminal
CPC: corporate purchasing card
CPP: customer payment provider
CPS: customer payment service
CPU: central processing unit
CRM: customer relationship management
CSP: customer service provider
CTMF: combined terminated merchant file
CTO: corporate travel online
CTX: corporate travel exchange
CV: charge volume
CVC: card validation code
CVV: card verification value
DBA: doing business as
DCC: dynamic currency conversion
DDA: demand deposit account
DEK: data encryption key
DES: data encryption standard
DFI: depository financial institution
DLL: downline load
DNS: domain name system
DOJ: department of justice
DSA: digital signature algorithm
DSE: data storage entities
DSL: digital subscriber line
DSO: days outstanding
DTC: depository transfer check
DUKPT: derived unique key per transaction
D&B: dun&bradstreet
EBCDIC: extended binary coded decimal interchange code
EBIDS: electronic invoice delivery service
EBITDA: earnings before interest, taxes, depreciation, and amortization
EBPP: electronic bill presentment and payment
EBT: electronic benefits transfer
EC: electronic commerce
ECA: electronic check conversion
ECC: electronic check council
ECC: elliptic curve cryptography
ECCHO: electronic check clearing house organization
ECI: electronic commerce indicator
ECK: electronic check
ECOA: equal credit opportunity act
ECP: electronic check presentment
ECR: electronic cash register
EDC: electronic data capture
EDI: electronic data interchange
EFS: electronic financial servicers
EFT: electronic funds transfer
EFTA: electronic funds transfer association
EFTPOS: electronic funds transfer at the point of sale
EFTPS: electronic federal tax payment system
EFTS: electronic funds transfer system
EIN: employer identification number
EIP: electronic invoicing and payment
EIPP: electronic invoice presentment and payment
EIRF: electronic interchange reimbursement fee
EMS: electronic merchant services
EMV: eruopay international, mastercard international, and visa international
ENR: automated enrollment entry
EOM: end of month
E-PAY: electronic bill payment
E-POP: electronic point of purchase
EPP: encrypting pin pad
EPS: express payment service
EPURSE: electronic purse
ERP: enterprise resource program
ES: establishment services
ESA: external sale agent
ESSP: encryption support service provider
ETA: electronic transactions association
ETA: electronic transfer accounts
FAX: facsimile
FCC: federal communications commission
FCRA: fair credit reporting act
FDIC: federal deposit Insurance Corporation
FI: financial institution
FICA: federal insurance contributions act
FIFO: first-in/first out
FILO: first in /last out
FIPS: federal information processing standard
FIU: financial intelligence unit
FMS: financial managements system
FMV: fair market value
FOIA: freedom of information act
FPA: federal program agency
FRB: federal Reserve Bank
FSP: full service processor
FRS: federal Reserve System
FTC: federal trade commission
FTP: file transfer protocol
GAN: global area network
GDI: government designated issuer
GDP: gross domestic product
GMT: greenwich Mean Time
GPRS: general packet radio service
GSA: general service administration
GSC-IS: government smart card interoperability specification
GSM: global system for mobile communication
GUI: graphical user interface
HCS: host capture system
HSM: hardware security module
HTML: hypertext markup language
HTTP: hypertext transfer protocol
HTTPS: hypertext transfer protocol secured
IAB: internet architecture board
IAFCI: international association of financial crimes investigators
IANA: internet bill delivery and payment
IC: independent contractor
IC: integrated circuit
ICA: interbank card association
ICS: issuer’s clearinghouse
IDEA: international data encryption standard
IDS: intrusion detection system
IEC: international electro technical commission
IFX: interactive financial exchange
IIN: institution identification number
INAS: interbank network for authorization services
INET: interbank network for electronic transfer
I/O: input and output
IP: internet protocol
IPS: intrusion prevention system
IRD: image replacement document
ISA: independent sales agent
ISDN: integrated services digital network
ISO: independent sales organization
ISO: international organization for standardization
ISP: industry service provider
IVR: interactive voice response
JCB: Japan credit bureau
JPEG: joint photographic experts group
LAN: local area network
LIBOR: London interbank offered rate
LIF: location in force
LOC: letter of credit
L&D: loss destruction
