One common misconception is that the processing of credit and debit cards is simple. and credit card payment processing fees  are calculated in the same fashion across the industry.  Many merchants assume that once a customer makes a purchase, their card information is sent directly to Visa, Discover, MasterCard or American Express and that these companies authorize the transaction and collect a percentage of the transaction which make up their credit card payment processing fees. In reality, it’s much more complicated.

 As it happens, Visa, MasterCard and the other card associations don’t have a lot to do with processing payments and transferring funds into merchant accounts. For that matter, if you’re paying higher processing fees than your competition, it’s not the card associations that you should blame, but other merchant account providers for small business.

• Card Associations: MasterCard, Discover, American Express and Visa. The card associations dictate guidelines and other rules for their brands which they then market to consumers and merchants.

• Issuing Bank: Banks or credit unions which issue Visa or MasterCard debit or credit cards to consumers (that is to say, your customers). In the case of American Express and Discover, the associations are also the card issuers.

Card associations and issuing banks set what are known as pass-through and interchange rates for cards. This can be thought of as the wholesale price that merchant account providers for small business pay to process transactions for specific kinds of cards. There are several different kinds of cards available from the card associations: debit cards, basic credit cards, business credit cards, rewards cards and so on. Each of these types of card has its own rates and each account provider pays the same wholesale rates.

• Processor/Acquirer: These are the companies who handle the actual processing of transactions, since they have the IT infrastructure to route transactions to the card association, which then forwards the transaction to your card’s issuing bank for authorization. The processor/acquirer is also the entity which adds funds to your account, prepares and sends you your monthly statement, handles charge backs and risk management as well as technical and customer support. There may be more than one company involved in providing these services; in fact, there are often as many as three.

• Merchant Account Provider: This is the company which you contract with to process your credit card payments. Merchant account providers for small business may be banks or other financial institutions, processor/acquirers or an ISO (independent sales organization) which subcontracts payment processing to a processor/acquirer. In general, your merchant account provider is the same company whose name appears on your merchant agreement.

• Payment Gateway: Shopping carts and other e-commerce software route transactions through a system called a payment gateway; this term refers to the system by which the transaction is routed to the processor/acquirer and on to the issuing bank.

Sound complicated? That’s because it is – and there are other middlemen who are involved and also get a share of the credit card payment processing fees, but at least for now, these are the most important players to know.

Education

We continually educate and inform merchants so they can avoid deceptive practices.