Getting Started: The Basics of Credit Card Processing for Small Businesses

Have you ever been overwhelmed with the thought of making a change for your small business?  The idea of accepting credit cards can seem like a difficult change for small businesses that have only accepted cash and checks as a form of payment.  Although it may seem like a complicated topic, it is important to take a look at it in bite size proportions.

Paying with a credit or debit card for most customers in America is easier than having cash on hand. Customers prefer to pay for items and services with either a credit or debit card.  This grants them the ease and convenience of payment flexibility. Before your business decides to accept credit cards, it is important to have an understanding of how the payment processing industry works.  Let’s take a look at the basics of credit card processing and answer some of the questions you may have.

What is PCI DSS? (Payment Card Industry Data Security Standards)
“PCI DSS” is a major buzz word in the payment industry right now.  Many small business owners are wondering how this standard will impact their business.  The PCI Security Standards Council was established in 2001 by American Express, Discover Financial Services, JCB International, MasterCard Worldwide and Visa, Inc. The primary goal of this council is to protect cardholder information.  The council has defined six goals and 12 corresponding requirements that any business of any size is required to adhere to when accepting payment cards. 

What Happens Behind the Scenes When a Customer Pays With a Credit Card?
The credit card network consists of a couple of primary players.  The process begins when a card issuer provides credit or debit card to the customer.  The main card issuers are Visa, MasterCard, American Express and Discover. When the customer pays with a credit or debit card in a store, the card information is gathered, either by swiping the card through a terminal, entering it into a gateway or keying it into a terminal.

The authorization system receives the card information and either approves or declines the transaction and notifies the merchant through the terminal or gateway.   All of the day’s transactions are sent to the settlement system and the movement of money from the cardholder’s credit card account into the merchant’s bank account begins.   The money from those credit card transactions is deposited into the merchant’s bank account within 2 business days.

How Are My Rates Determined?
The most important thing to understand with regard to pricing is that the credit card processing rate structure is based on risk.  The more information that is provided to the authorization system, the more likely you are to pay a lower rate. There are two main account types used in setting credit card processing rates: Retail and MOTO/Ecommerce. Retail accounts are for businesses who see their customers and are able to swipe their customers’ cards the majority of the time.  Retail accounts are generally the lowest priced accounts, as the maximum amount of cardholder data is captured through the magnetic strip on the back of the card.  This reduces the risk associated with the transaction and allows for a lower rate structure.

The other account type is MOTO/Ecommerce.  This works best for businesses who will not see the customer the majority of the time and will be keying the card information into a terminal or gathering information through a shopping cart.  Since the magnetic strip on the back of the card cannot be read, a minimal amount of cardholder data is captured and transmitted to the authorization system.  As a result, transactions under this account type usually have higher risk and higher rates.

How do I understand the fees on a statement?
Each month, you will receive a statement reflecting the previous month’s activity.  Credit card processing rates are often found to be confusing. Here are some miscellaneous fees that may be found on your monthly statement:

• Annual fee
• Monthly statement fee
• Visa authorization fee
• MasterCard authorization fee

It is important to watch out for a processor that lists the total discount expense without breaking down the associated fees. Also make sure that all fees were fully disclosed and explained to you. Some fees to question are:

• Monthly minimum fee
• AVS fee (Address Verification Service)
• CVV fee (Card Verification Values)
• Supplies fee
• Batch fee
• Customer service fee
• Terminal support fee
• Merchant club fee
• PCI DSS Compliance fees

Now that you have a better understanding of credit card processing, when is the best time for your business to accept credit cards?  The answer is simple; when you believe it will improve your business.  Accepting credit cards may help to increase your number of customers, average sale amount and cash flow.  One way to help you determine if it would impact your business is to ask your current customers. Asking your customers can be a perfect and simple way to see if they would take advantage of this form of payment for your business.

Go with the NGA and WDDA endorsed provider

Electronic Data Payment Systems has been providing comprehensive payment processing solutions, valuable educational material and excellent service to NGA members since 2008.  All members are entitled to receive a complimentary savings analysis illustrating the savings available through this exclusive program.  To learn more about the NGA member credit card processing program and other services available to NGA members, call 866.578.9740 or visit us online at www.edpaymentsystems.com/partners/NGA or www.edpaymentsystems.com/partners/WDDA.

Already accepting credit cards?
Fax your statement to 866.528.3854 and a National Enrollment Specialist from Electronic Data Payment Systems will contact you with the results. 

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Kelsey Tedeschi, Marketing Manager Electronic Data Payment Systems