Who is Involved in Credit Card Transactions?

Despite the turbulent economy one of the key elements in running a successful small business is having a good credit card processing platform.  However, before you jump head first into the waters of credit card processing it is essential that you get to know how credit card transactions occur and who the major players are when it comes to credit card transactions.  If you understand the system and the key players in that system you are able to better position yourself to ensure that your small business is set for success.

In trying to understand how credit card transactions occur we will take a look at 5 of the most influential players that are involved in every credit card transaction processed.

The first major player in the credit card transaction and one of the least influential in terms of actual role is the credit card carrier, i.e. Visa or MasterCard.  In the grand scheme of credit card transactions the credit card issuer plays a relatively small role in the day to day transactions.  The credit card companies set forth the guidelines on how their cards can be used to pay for services and goods as well as how much merchants can be charged in regards to fees.  The card providers and the banks that issue the card to the customer establish rates and fees for each specific credit card.  The card type determines the actual rates and fees set however every merchant is charged the same rates and fees for each type of card.

Next on our list is the participating bank.  The participating bank is the bank who has actually issued and provided the credit card to the consumer for use.  While credit cards typically include a major card brand, such as Visa or MasterCard, the card itself is typically issued by a bank unless the card company plays both roles, as is the case with American Express who acts as both the card issuer and credit card financial backer.

The transaction processor is typically a third party provider who has been contracted by the credit card companies and banks as a means of outsourcing the processing of the credit card transactions.  In most instances this would fall to a technology company.  The role of the transaction processor is to send the transaction, aka charge, from the retailer’s register to the issuing bank which will confirm ad approve the transaction.  In most cases the transaction processor will charge the merchant transaction fees that are built into the interchange fees.

The merchant account provider acts as a middle man between your small business and the credit card companies or banks.  The merchant account provider will handle all of the paperwork, processing fees, and rates that are associated with a credit card transaction.  However, as we all know nothing that good comes free and so is the case with merchant account providers.  The merchant account provider will charge a fee for their services.

The last major player in the world of credit card transactions is the payment router, also known as the payment gateway.  The payment gateway is a requirement of all merchant shopping carts however as a small business owner your interaction with a payment gateway vendor is typically limited as the merchant account provider typically handles the fees associated with the payment gateway and charges you a monthly fee.

Upgrading your small business’ payment platforms from cash to cash and credit can be a very daunting challenge and can at times seem overly complicated.  By taking the time to research through credit card processing and all of the details associated with credit card processing you can ensure that your small business makes the transition as smoothly and efficiently as possible.

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