It all seems simple enough to the casual observer. A customer comes into your store, selects a $25 item she wants, a credit card is presented, the transaction is rung up, the customer puts the credit card back in her purse, you hand the customer her merchandise and she leaves your store. It’s a nice simple transaction between just the customer and you. She got her merchandise and you got $25.
What the casual observer doesn’t realize is that there are at least three, and possibly five or more organizations, some of them with thousands of employees, involved in that “simple” credit card transaction. And all of these organizations want a piece of your $25 from the transaction – in the form of credit card processing fees.
Before you can even try to understand the fees involved in credit card transactions, you need to at least have a thumbnail idea of who the organizations are and what they do. Here are some very basic descriptions of who is or may be involved in a transaction:
Credit Card Associations: These are companies that create the credits card brands. Think Visa, MasterCard, Discover, American Express, etc. They make the rules and also handle and oversee a lot of the communications involved.
Credit Card Issuers: These are the financial institutions that issue credit cards to the consumers. These can range from the largest banks to a relatively small Savings and Loan.
Acquiring Banks (also known as Acquirers or Credit Card Processors): Any bank, financial institution, and public or private company that maintains a merchant’s credit card processing relationship and receives all payment card transactions from the merchant to be distributed to the credit cards issuing banks. These are the financial institutions that act like an information pipeline between the Merchant and the Credit Card Associations. They pass batches of information along to the associations so that merchants can complete the transactions. The batches of information may be authorization requests or transaction information among others.
Merchant Account Providers: This is where we come in. Providers are the companies that manage credit card processing through sales, support and other offerings. Think of us as your facilitator.
Payment Gateways: Also referred to as “electronic gateway.” A gateway is specialized software that authorizes credit card or electronic check transactions over the Internet. These services transmit e-Commerce and smart phone transactions through the organizations for authorization in a matter of seconds.
PCI or PCI DSS: The Payment Card Industry Security Standards Council is not involved directly in processing your transactions but you may very well see a PCI DSS fee on your statement. The PCI is an organization established by Visa, MasterCard, Discover, American Express and JCB to create and enforce best practices to maintain data security through all aspects of a transaction from merchant to issuer. The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to ensure that ALL companies that accept, process, store or transmit credit card information maintain a secure environment. While merchants are not assessed per transaction directly by PCI, the people who process your transactions are, and they will most likely pass along the fees and assessments on your statement.
Here is a description of a transaction in the simplest, most basic terms: A customer gives you, the merchant (or your Payment Gateway), his/her credit card information. You (your systems, really) combine his/her information with the date, cost, store name, etc to make a transaction record. The transaction record goes from you to the Merchant Account Provider. The Merchant Account Provider sends the transaction record through the Acquiring Bank to the customer’s Credit Card Issuer through the Credit Card Association network. It can all be done in seconds.
Like I said, those are very basic descriptions. Each of the organizations does more than what I’ve mentioned, but hopefully now you can understand where the fees are coming from and going to.
To try to cover every fee in a blog post would be impractical at best (and just plain silly at worst). That’s why we’ve created The ABCs of Fees, a downloadable resource that you can get right here.
Credit card processing fees are complex – tough to understand, difficult to keep a handle on, and just when you think you’ve got it all nailed down, somebody (usually one of the credit card associations) moves it. That’s why we’ve created this website to be your resource.
