The Role of Your Credit Card Processor


Whether you pay your credit card processor one lump sum at the end of the month or have a little amount deducted from each daily batch of transactions, you are paying for a service. But, what exactly are you paying for? Your credit card processor is merely one component of completing your transactions. There is a vast and complex network of companies involved in every transaction and your processor manages the process between all of the companies involved. In a nutshell, your processor represents your business with each of the card brands you accept such as Visa, MasterCard and American Express.

The Magic Behind the Scenes

When you accept a credit card there are a number of steps that place for the money to be deposited into your bank account. While the steps vary slightly based on the type of card, the steps involved start with capturing the card information. This can be done manually, through a website shopping cart, a POS system, or a terminal with a chip or stripe reader. The card data, along with your business information and the information about the specific transaction is sent to an Acquiring Bank such as First Data. The Acquiring Bank sends the information to the card brand (Visa, MasterCard etc.) who then checks with the specific Card Issuing Bank (Wells Fargo, Capital One, Bank of America, etc.) to see if there is enough available credit on the account. Assuming the funds are available, the Card Issuing Bank holds the funds required for your business.

The Card Issuer sends back a status of approved, declined or error to the Acquirer, who then reports back to your business in a few seconds. At this point, the transaction might be considered complete. But, it is far from complete. At the end of each business day you close your transactions for the day by sending a "batch submission". This likely happens automatically each day. The Acquiring Bank then transfers the batch amount as a “batch settlement” into your bank account. The Acquiring Bank then sends a request to the card brand for reimbursement of the funds they advanced to you. The card brand sends a request to the Card Issuing Banks for all of your transactions. This could be many, many banks. The Card Issuing Banks then pay the money back to the Acquiring Bank and adds the amount due to the cardholder's monthly statement. During this process, the fees that a business pays to process that credit card are collected by all the parties involved. The Card Issuer receives the majority of the fees, called an Interchange Rate, and the Acquirer gets the remaining amount after Interchange is paid. This remaining amount is split between the Acquirer and the credit card processor. Acquirers also charge fees. Some are mandated by the Card Brands that make up the remainder of your total processing fees. Your processor makes sure that all of this gets handled.

Where Your Processor Fits In

A credit card processor, such as Chosen Payments, serves as a link between your business and the Acquirer and is registered with the Card Brands to legally provide merchant services. Your processor has access to specific card and transaction information to assist you in managing your merchant account. As you can imagine, this requires a great deal of security and trust from Visa, MasterCard and others. The registration process is a very thorough, rigid and expensive endeavor and many companies are turned down by the Card Brands. A processor such as Chosen Payments operates a 24/7 call center to help merchants through processing issues at all times. While this is a significant cost of operations, you would likely never want to miss a sale because of a technical glitch during a weekend or evening hours. Your processor should provide a dedicated account manager that understands your business and your unique operations such as what type of POS system you use. These are the services you are paying for each month through the fees you are charged.