Every company that wants to grow needs to recognize the importance of credit cards and Clover POS systems to process payment. Although the processing of credit cards involves a series of complicated steps, it is easy to complete a transaction in a few seconds. Understanding how things work during the process will allow you to navigate the landscape of processing companies. So, here are details to help you understand how the processing of credit cards works.
Key Players
The essential players dealing with credit cards include the merchants, cardholders, and card associations.
1. Merchants
These are companies or corporations that offer goods and services. They maintain an account that allows them to receive payments from clients.
2. Cardholders
Any individual, business, or entity that has a credit card is considered a cardholder.
3. Card Associations
Card associations include MasterCard, Discover, Visa and more. These organizations don’t handle the processing or issuing of the cards in most situations but set the common terms for merchants, issuers, and acquirers.
Fees and Funding
Processors will deposit money to the bank account of merchants and deduct the processing charges. Depending on the agreement there will be variations in the deposited cash and the deducted fees.
1. Deduction of Fees
Processors use two different methods to deduct fees from the credit card during transactions, monthly and daily discounts.
Monthly discount: a processor tallies all charges for the month and deducts the fees at the beginning of the next month. The processor then pays interchange fees throughout the month for the business. This is because the business processing bank pays those fees to the cardholders issuing bank. This makes it so the business is able to receive gross deposits from sales throughout the month.
Daily discounts: every day the processor will deduct their fee from the sales. As a merchant, you will still have to pay other fees associated with processing at the beginning of the month.
2. Deposit of Funds
Once the processor deposits money, the funds will reflect the merchant’s account the following day. At times, the processor will hold the merchant’s money or charge fee’s in case they detect fraud.
Movement of Funds
Merchants will send a lot of authorizations to the processor daily. In turn, the processor will go through the authorization requests and submit them to the card’s company. The processor will, therefore, deposit money to the merchants’ accounts and deduct the processing charges.
The process settlement and clearing of funds involve the acquirer, merchant, card network, and issuer, among others.
1. Acquirer
The processor transmits the authorization requests through the network of the card’s association and interchange. It then deposits money to the accounts of merchants through the clearinghouse.
2. Merchants
Merchants will start the process of settlement by sending a few authorization requests to the processor or the acquiring bank.
3. Card Network
A card association will credit or debit money after the authorization requests are evaluated and confirmed.
Final Thoughts
Accepting payments online or through your smartphone means you to have a secure method. Credit card processing gives you the privilege of enjoying such a safe and fast process. Prioritize credit card processing to take your company to greater heights.
