Credit Card Processing

Most credit card buying is impulse buying. This is especially true of online buying. As we slowly move toward a digital and for the most part cash-less society, accepting credit cards is an absolute necessity for any business. As a merchant you must be able to take your visitors money NOW. You also need to provide a receipt for the purchase immediately. In a brick and mortar store you must provide all purchased items immediately. Online you must provide a purchase receipt immediately by email and if you are selling digital goods, the product within minutes. Online shoppers realize that hard goods (real tangible items) must be shipped.

Why Accept Credit Cards?
Each day in the USA , more than 52 million purchase transactions on credit and debit cards pass through the VISA and MasterCard networks. More than $295 billion of goods and services were processed by Visa and MasterCard in the first quarter of 2003. Some of the reported benefits are:

• Accepting credit cards can increase sales by as much as 40%
• Studies show that credit card customers spend 2-1/2 times more than customers who only carry cash.
• Credit cards give customers the freedom to buy previously unplanned purchases.
• Credit cards allow customers to purchase more expensive merchandise than they had originally planned to buy.
• Credit card customers are often less conscious of slight price differences and will seek out businesses that offer credit card payment options.
• Since customers are more likely to shop at businesses where credit cards are accepted, they tend to look for and read those ads first.
• Cash shoppers buy heavier on paydays and just before holidays, while credit card customers buy whenever they want something.

Research shows customers who purchase with credit cards tend to return to the same business again.

How Does Accepting Cards Work?
There are four required elements in processing credit cards:

Your Business Bank Account - You sell the goods and services to your customer. The customer's payment eventually ends up in your bank account.

A credit Card Processor - The credit card processor is an intermediary between the shopping cart and different banks that work with them. The credit card processors provide information to the bank that hosts your merchant account. It also works with the bank that issued your customer's credit card to verify the account and accept or decline the transaction.

A Merchant Account - The bank that hosts your merchant account is the financial institution that actually provides the bank-to-bank processing of the transaction. They send a transaction to your customer's credit card bank charging your customer's credit card. They then deduct their processing fees and send the balance to your bank account

A Shopping Cart For Online Transactions - Online transactions also require a shopping cart. The shopping cart software collects your customer's payment information in a secure manner so no one else can see it then connects to the credit card processor and passes the information to them and waits for a response. After processing is completed, the shopping cart receives a response from the credit card processor to accept or decline the credit card.

How Do You Accept Credit Cards?
Credit card processing can be performed either through a bank or by using an independent billing service company frequently called third party processors. Off line, all you need is a merchant account and the hardware to swipe the card. You can install a complete Point of Sale system with real time processing, but it isn't necessary, although I would recommend it if you do a high volume of credit card sales.

For Online credit card sales, most Banks require that you have:

• A web site that utilizes a secure server. A secure server is a web server with the SSL (Secure Socket Layer) protocol installed. The URL for the order page will be https://, where the “s” denotes that the page is secure. Your hosting company may provide this service for an extra monthly fee or you can purchase the service form a company like Verisign.
• A shopping cart installed on your web site that can accept orders and work with a payment gateway service.
• A payment gateway service that can take the information from your shopping cart and transfer it to your merchant account.
• A merchant account from a bank you have selected
• A business bank account that the funds collected from credit card purchases can be transferred into. Depending on where you live, you may also have to have a business license to get a business bank account.

Most Independent billing service companies require that you have:

• A professional-looking web site to do business
• A proper business or trading name
• A verifiable email address
• A business bank account for a business or a personal bank account for individual where the money collected from your customers can be deposited. (Please note: Most services require that you have a business bank account.)
• Trade references
• Good credit record and tax returns
• You may or may not need a shopping cart. If you do, it must be one that will work with the service you've chosen.
• The Billing service will provide the secure server, the payment gateway and the merchant account.

Future Trends
As ecommerce matures, more and more companies are looking into the possibility of using smart cards and iButtons because of the greater security that they offer to the merchant and consumer alike.