Processing Explained
How processing works.
Authorization
- Customer presents their card at the point of purchase
- The card information is transmitted to the merchants processing bank.
- Merchants processing bank sends request to the customers card network.
- The card issuing bank then either approves or denies the transaction
- The approval or denial is then sent back to the merchant to finalize the transaction.
Settlement
- Merchant submits “batch” of all transactions done that day to the processor.
- The processor forwards the settlement request to Visa, MasterCard, Discover or Amex for confirmation
- Card network requests funds from card issuer or bank.
- Card issuer then receives the settlement and either issues a credit or debit.
- Processor deposits the money into the merchants account and settlement is complete.
Understanding Interchange Fees
Sample Interchange Table
What is Interchange? Interchange are the fees paid by the merchant for accepting credit and debit cards as payments for their goods and services. Typically, there are two fees associated with every transaction.
- Percent (%) of the total transaction amount and
- A per transaction fee. ie. $0.12
Who charges Interchange fees? Most of the fees associated with Interchange go the card issuing bank of the customer. The card network/brand and the merchants acquiring bank also are part of the interchange costs.
What affects Interchange? These fees vary on every transaction depending on certain criteria. Interchange fees are affected by several factors which include:
- Card Brand – Visa, MasterCard, Discover, American Express.
- Bank Issuer/Card Type – Mileage card, Rewards card, Debit, etc.
- How the Card is Accepted – Swipe, Chip, Dip, e-commerce, manually entered, etc.
- Industry of the Merchant – Will affect the cost of interchange.
- Transaction Amount – Size of the transaction
How to Lower the Costs of Interchange
- Swipe the card when the card is present.
- Batch/Settle you point-of-sale or terminal every day.
- Properly enter tip amounts before you settle the batch.
Interchange Plus vs. Flat Rate Pricing
Due to the fact interchange fees vary on every transaction it can be confusing and difficult for a merchant to project costs. With Flat-Rate Pricing it makes it easy for a merchant to project their monthly cost based on a set flat rate for every transaction. However, typically a merchant will be paying more money at the end of the month with flat rate pricing.
Interchange Plus
Flat Rate Pricing
PCI DSS
PCI DSS is the Payment Card Industry Data Security Standards. Created in 2006 by Visa, MasterCard, Discover, and American Express to ensure that all companies that process, store, or transmit credit card information maintain a secure environment. The standards created apply to all merchants.
These standards are designed to limit risk of theft and protect all cardholder data such as personal identification, account numbers, expiration dates, names, addresses, or social security numbers.
PCI Compliance requires all merchants to:
- Restrict physical access to cardholder data
- Track and monitor all access to network resources and cardholder data
- Regularly maintains and test security systems and processes
- Maintain a policy that protects information security
- Maintain a firewall
- Change all vendor supplied defaults for system passwords and other security parameters
- Protect card holder data
- Encrypt transmission of cardholder data across open and public networks
- Use and update anti-virus software on all systems commonly effected by malware.
- Assign a unique ID to each person with computer access
Violations of any of the PCI compliance requirements may be subjected to fines as high as $100,000
CVV2
CVV2 is “Card Valuation Value 2 code” It’s the three digit code on the back of Visa, MasterCard, and Discover cards. On American Express cards, it’s the four digit code on the front.
There are two security codes encrypted into every credit card. CVV1 is encoded into a cards magnetic strip and is only used in “card present” transactions. CVV2 are often used by merchants in “card not present” transactions. CVV2 codes are typically used for purchases over the phone, fax, mail, or e-commerce transactions as an extra security measure.
