Credit card processing involves a complicated system of communications, authorizations, and settlements. In order to run a more efficient business, it's important to have a basic understanding of how credit card processing works.
Knowing this will help you understand the different card processing pricing structures, which will make it easier to choose the best processing partner for your business.
In the most basic terms, a POS machine is the system that connects all of your in-store payments.
Your POS card reading device will read information from your customers’ cards, check their account for the right amount of funds, and transfer those funds to you (the merchant). The system then records the transaction in order to produce a receipt.
While this may seem like a quick and simple process, there is a lot that goes on to achieve these payments. And with each step, fees can be incurred.
To understand how this works, let’s take a look at the different players involved in each transaction:
When you make a credit card payment through a POS system, a series of communications and transactions take place.
First, the credit card terminal sends information to the processor. This processor then sends this information to the issuing bank for approval. The issuing bank approves or declines the transaction and sends this back to the processor. The processor then sends the approved or declined transaction to the card terminal.
This all happens in a matter of seconds, and the process is known as authorization. Once authorized, the second stage is the settlement. This is when the issuing bank sends the funds to the merchant's bank through the acquiring bank. This usually happens once each day for all daily transactions.
Credit card processing for online payments follows the same procedure of authorization followed by settlement. The only difference is that there is no credit card terminal involved. Instead, the customers enter their payment information into an online checkout form. This information is then sent to the payment processing company, which sends the data to the card association.
Just like with a POS system, the payment is authorized by relaying information between the issuing bank and the acquiring bank. Once the bank authorizes the payment, the settlement will take place through the acquiring bank.
Each time the processor deposits funds into the merchant’s bank account, they deduct processing fees. The merchant general receives these deposits on the next business day, where all daily transactions are bundled together.
There are two main methods that processors use to deduct fees. These are daily or monthly discounting. Daily discounting is when the processor takes off their fees each day with each daily deposit. Monthly discounting is when the processor deducts an entire month’s worth of processing fees but continues to make daily settlements.
The fee processing and pricing model depends on the processor you’re working with. Of course, the fees make a difference to the overall profitability of each sale.
Mondo Payments guarantees the lowest processing fees for all clients. Whether this is online or in-store, Mondo Payments has a wide range of leading POS solutions available.
With Mondo Payments, you can know that your business is using the lowest rates that remain fixed. This makes it far easier and more cost-effective for any business to find a card processing system that works for them.