CREDIT CARD PROCESSING 101

...continued

Here’s what happens when a customer uses a credit card:

1. The merchant provides the card information by swiping the card or manually keying the information into a credit card terminal.
2. The authorization system receives the information and approves or declines the transaction and notifies the merchant.
3. At the end of each day, the merchant batches out the terminal sending all of the day’s transactions to the settlement system.
4. The transfer of funds is initiated by the bank.
5. The funds are directly deposited into the merchant’s bank account.

There are several variables that determine the discount rate you pay when processing a transaction, but the overall rate structure is based on the risk associated with the transaction. As a general rule, the lower the risk, the lower the cost of the transaction. In the credit card processing world, the risk that we are concerned with is the risk of the transaction being fraudulent or disputed by the card holder. The further away you get from swiping the customer’s card into a terminal and getting a signature in person, the higher the inherent risk of the transaction. 

For this reason, there are two different ways a merchant account can be set up: retail and MOTO. A retail account is reserved for businesses that see the customer the majority of the time and will be in a position to swipe cards and obtain an authorization and signature at the time of purchase. Overall, retail rates are less expensive than MOTO rates because the risk of fraud is minimized. A MOTO account, on the other hand, is best for businesses that do not see the customer or the customer’s card at the time of purchase. These rates are higher overall because the risk of fraud is heightened by the fact that the merchant doesn’t actually see the customer or the card.

Business owners often incur unnecessary costs as a result of using the wrong type of program or processing transactions incorrectly. Being set up correctly is the first step in maximizing the effectiveness of your credit card processing program. The primary transaction type associated with your merchant account sets the expectation for the risk department regarding what they should see come through your account. When a transaction is processed that is outside of that expectation, additional fees are assessed. This is why it is critical to make sure that you are set up on a retail account if you are swiping most of your cards or a MOTO account if you are keying most of them in.

Although MOTO rates are typically higher than swipe rates, there are things you can do to help keep your rates as low as possible. Terminal prompts are available for all key entered transactions that will ask for additional information about the cardholder. This data is compared to the information associated with that account and if it matches, a lower rate will be applied to the transaction. One of these prompts is AVS or the address verification system. On a key entered transaction where the card is present but can’t be swiped, the zip code is requested. On a key entered transaction where the card is not present, the invoice number, Card Verification Number (located on the back of the card), address and zip code is requested. It is important to enter all of the information you are prompted for, as providing this information will help transactions qualify at the lowest possible rates.

For those of you who are currently accepting credit cards, take a look at your monthly statement and pay attention to the following items:

• AVS fee
• Per item fee
• Monthly minimum fee
• Transaction fee
• Batch fee

You should take the opportunity to compare your statement to another processor to be sure that you are set up correctly and ensure that you are getting competitive pricing. Electronic Data Payment Systems is happy to offer a complimentary statement analysis to all CHA members to help you understand your current program compared to the service and savings they offer. Contact them today at 1-866-578-9740 to take advantage of your complimentary savings analysis and explore how they can help your business grow.