Credit Card Processing – Who are the Key Players?
You want to start your own business. Things are exciting, you have nailed down your product, have filed for your LLC, and then you think, “Wait a minute, how do people pay for my awesome new widget?” This is where credit card processing comes in. Below we will uncover the roles of the behind-the-scene players that many business owners may not be aware of.
WHO IS INVOLVED?
The Cardholder: It starts with the swipe of a card during your favorite client’s anniversary dinner, or a teen entering in his mother’s credit card number on a new gaming site. Then voila, you get paid! Enter the cardholder. A cardholder is anyone that applies for and is issued a debit or credit card from a card issuing bank.
Acquiring Bank: This is the bank that you, as the merchant, contract with to maintain an account to accept credit cards as a form of payment. The acquiring bank is also a registered member of card associations such as Visa and Mastercard. How do your funds magically get deposited into your bank account once the customer runs their card? The acquiring bank takes care of this.
Issuing Bank: The issuing bank is also known as the cardholder’s bank. This is the bank that gives Grandma Jean that credit card (they can do this because they, like the acquiring bank, are also a registered member of card associations tied to Visa or Mastercard) to buy that new purse that she has always wanted. The issuing bank that was so gracious to issue Grandma a credit card is also the one that pays the acquiring bank the funds when Grandma makes a purchase. Grandma then has to repay the issuing bank the amount she has run on her credit card under the terms of the credit card agreement.
Card Associations: Contrary to popular belief, Visa and Mastercard do not issue merchant accounts or even credit cards. As a card association, they actually govern financial institutions, ISOs (independent sales organizations) and MSPs (member service providers) that work together to support credit card processing and electronic payments. They also serve as a clearinghouse. What is a clearinghouse, you ask? According to NASDAQ, “A clearinghouse is simply a middleman, or intermediary between buyers and sellers of assets.” Card associations regulate who, where and how cards are used.
Here is the time to listen up. Card associations determine interchange fees. Interchange fees are the portion of credit card fees that you, as a merchant, pay per customer transaction. These fees go directly to the banks that are issuing the cards. So it turns out that the bank that was kind enough to give Grandma the credit card, is also being compensated by the merchant for each transaction that Grandma makes. This fee is non-negotiable and set directly by the card associations. They CANNOT be changed-except by our lovely friends at Visa and Mastercard. Card associations also act as an intermediary or arbitrator between the issuing and acquiring bank, and build the card brands. They do all of this while making a profit.
Processor: Last, but not least, this is the company that you have built a great rapport with (such as 365 Glacier Payments) that actually connects you, as the merchant, the acquiring bank, and the card network to make the credit card transaction possible. This is also the player that sets you up with your sleek equipment, and makes sure that you receive your deposits. Processors provide quite a few perks for the merchant. You need state-of-the-art software and hardware in order for your customers to hand over their precious credit card info? The processor will set this up. Need customer service help? The processor will provide this. The bottom line is that a good processor will have your back.
BOTTOM LINE:
As you familiarize yourself with the key players involved in credit card processing, make sure that you have an awareness of the role that each person on your team plays. Know that having a competent, reliable processor who has your best interests at heart is imperative to your business. At 365 Glacier Payments we are dedicated to the education of merchants regarding business advancement and growth. If you have additional questions or need help setting up a merchant account please schedule an appointment here. If you prefer, you can reach us at 866.857.8766 or email [email protected]. We would love to help!
