Paying with a credit card seems quick and easy when you’re the customer. All you do is swipe, insert, or tap to make a purchase or click on a website. However, as the merchant, credit card processing can take on a whole new meaning. Knowing who the players are can help you know your options and determine the best choice of vendors and partners.
So, who are the key players for credit card processing?
First, there's you, the Merchant. You're the business accepting payments. That's easy.
Next up is your customer, the Card Holder, the person whose card is being charged. Again, easy enough.
Each charge to a credit card involves your customer’s bank and the Card Associations. VISA, Mastercard, AMEX, and Discover are all card associations. These are the institutions that license bank credit card programs and set common transaction terms for merchants, issuers, and acquirers. Their functions include transaction processing, authorizations, interchange settlement, and fee processing. They also establish all the industry rules for using credit cards.
Now your payment processor comes into the picture.
The term payment processor can refer to many different parties. These parties perform payment processing in one way or another, but each party may offer different services or additional technology to help meet your needs. The role of the payment processor is to determine if the card holder is eligible to make the purchase, authorize the transaction, and exchange the funds between the card holder and the merchant.
Here are some of the key players that are often referred to as the payment processor:
Payment Processing Platforms. These organizations are the heart and soul of credit card processing. All roads lead to the payment processing platforms, as these financial institutions work with the card associations and the other players in credit card processing to enable a merchant to accept credit cards.
Gateways. A gateway is a technology or service that acts as a connection to the payment processing platform. This connection involves reading the payment card and sending customer information. A merchant might need to use a gateway when connecting directly to a payment processing platform is not an option. A gateway is most commonly needed when accepting payments on e-commerce sites. Gateways often charge a fee for the service they provide.
Independent Service Organizations and Merchant Service Providers (ISOs & MSPs). These are known as service providers of credit card processing. They have relationships with one or more payment processing platforms or gateways and assist merchants with setting up and managing their processing service. For instance, ChargeLogic Merchant Services is affiliated with payment processing platform, First Data. ISOs and MSPs work to provide merchants with the tools and support needed to navigate the obstacles of payment processing.
Banks. A bank is a financial institution that provides numerous financial services to its customers. Many merchants choose to work directly with their banks for payment processing because there is already an established relationship between the two parties. Banks have relationships with payment processing platforms and can also serve to assist merchants in managing their payment processing.
Now that you’re familiar with some of the key players, you’re ready to tackle the steps of credit card processing. Understanding the players and the steps of processing a credit card can help you choose the right service providers for your business.