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Understanding Online Credit Card Processingc
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An online business would not be in business for very long if they could not accept credit cards as payment for their goods and services. That is why it is very important that the entrepreneur understands online credit card processing, and how it works.
In every transaction, there are four entities involved in online credit card processing. The issuing bank and the acquiring bank both make loans.
The card holder is loaned the money to purchase the item that they must pay back within 30 days or incur interest. The merchant actually receives less money than they charged the customer due to both banks charging them a fee. The issuing bank calls its fee an interchange fee and the acquiring bank charges something called the discount rate.
There may even be other types of fees tacked on to the end total that you, the merchant, will have to pay. The only credit card that doesn’t have all these fees attached is American Express. It acts as both issuing and acquiring bank, so only one fee is charged.
Basic interchange rates are published information and can be found on most credit cards’ websites. The type of business that you are in will affect the interchange rate as well as whether or not the card is presented for the transaction and the kind of card used. For example cards issued to government officials, on the state account has lower interchange rates than the average consumer card. This is important to know when dealing with online credit card processing since it affects your bottom line.
The rates the banks charges go up in relation to the risk involved from lenders point of view. The higher the possibility that the lender will not get the money back is the deciding factor. Chargebacks can be the death of any online business. To the banks the only safe transaction is when a person presents their card to a business in person. If your business relies on telephone sales or internet sales, you will need to hire a high risk credit card processing service if you are refused by a bank.
When you have anonline credit card processing company, you are actually in business with two different entities. One is the merchant service provider; this is the person that you as an owner will be in contact with the most. Behind the service provider is a company that handles the actual brass tacks of the transaction, they reconcile the debt and prepare the statements for the consumer.
Then you also have the underwriter. This is the person or financial institution that is assuming the risks, and often these risks don’t end with the purchase. If an item is under warranty, the risks remain until the warranty has expired.
As you can see it’snot a simple matter to accept credit card payments. There is a lot of red tape and paperwork involved, and as a business owner the more you know, the more efficiently you will be able to handle customer inquiries and to deal with your online credit card processing provider.
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