A credit card processing service is a company which processes credit card transactions for the retail, wholesale, phone/mail order, and Internet trades. When a credit card is run, it goes through a credit card processing service, not directly to the company which issues to the card. The service handles the multiple steps involved in credit card processing in exchange for a fee, usually assessed as a percentage of each transaction. For businesses which want to be able to accept credit cards, finding a credit card processing service to work with is crucial.
In many cases, a bank offers credit card processing services. In the case of a small business, working directly with a bank can often yield savings. Typically, a business processes credit cards through the bank it uses, concentrating all of its finances with one company. A business can also choose to go through a standalone credit card processing service which is not affiliated with their bank.
In either instance, the business and the credit card processing service agree on a contract. The contract specifies the charge for each credit card transaction, along with which credit cards the business will be able to accept. The company may provide credit card terminals to their clients, either for free or a small leasing fee. In other cases, the business is required to purchase the credit card terminals it will need to process credit cards. Once all the equipment has been set up, the business can begin accepting credit cards, running them through the credit card processing service, which handles the details of the transaction behind the scenes.
When a credit card is swiped through a terminal, the terminal communicates with the credit card processing service, which determines whether or not the credit card is valid and if the customer has enough credit to pay for the transaction. If the transaction is approved, the terminal indicates this and prints out receipts for the business and customer. In a business which uses instant verification, the money is immediately transferred from the customer's account to the credit card processing company, which later deposits the money into the client's account. In batch processing, all of the transactions are run simultaneously at the end of the day when the credit card terminal is “batched out.”
If there is a problem with the card, the credit card processing service sends an error to the terminal. Common errors include declines and stolen card flags. To resolve the problem, the business may ask the customer for another credit card, or it may call the issuing company for more information. The instantaneous communication is a type of fraud protection, ensuring that both businesses and consumers are protected from fraudulent transactions as a result of stolen or fake credit cards.