Here’s a brief guide on how credit card processing companies work and the impact of credit card acceptance on small businesses.

1. How Credit Card Processing Works
Here’s a brief guide on how credit card processing companies work and the impact
of credit card acceptance on small businesses.

2. Table of Contents
.01 – How Credit Card Payments Process
.03 – Choosing a Credit Card Processing Company
.04 – Security Features
.06 – The PCI Security Standards Council
.07 – Benefits of Credit Card Acceptance
.08 – Summary
Page .00 How Credit Card Processing Works

3. How Credit Card Payments Process
Page .01 How Credit Card Processing Works
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4. How Credit Card Payments Process
The merchant submits the information
about a credit card transaction to the credit card gateway for the
customer.
The payment gateway process the transaction
information by sending it to the merchant’s bank processor using a
secure connection.
The merchant’s bank then submits the transaction
to the credit card network, which routes the transaction to the
customer’s issuing bank.
The issuing back will either accept or decline
the transaction, depending on the availability of funds. Then, they
pass the information back to the credit card network and to the
merchant bank’s processor.
Transaction results are sent to the gateway
and the funds are transferred via the credit card network to the
merchant’s bank account in what is known as the settlement process.
Page .02 How Credit Card Processing Works
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5. Choosing a Credit Card Processing Company
The merchant agreement is the most important part in choosing a merchant
service provider. You need to ensure that the terms of this agreement are
consistent with your individual business’s needs.
• The merchant service provider agreement should be a
good fit for your business size, transactions and
industry.
• If American Express and Discover cards are used for
more than 25% of your business, make sure you can
process these cards directly, just as you would with Visa
or MasterCard.
• If you accept payments from corporate cards, make
sure your system supports this and the terms of the
support are laid out in your merchant agreement.
Accepting credit cards
can increase revenue
by as much as 23%.
- Maverick BankCard
Page .03 How Credit Card Processing Works
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6. Security Features and Standards
Page .04 How Credit Card Processing Works
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7. Security Features
Having the right security is essential. Make
sure your processing package incorporates the
following:
Address Verification Services (AVS):
The AVS check requires billing information, specifically the
billing address, be correctly entered before a transaction is
processed.
Card Verification Value (CVV):
The Card Verification Value (CVV) check is sometimes also
referred to as the CVV2 card type, the CID, or CVC2. When
the CVV2 check is required, there are two communications in
the authorization process.
1. Confirm the dollar amount to be authorized, ensuring the
funds are actually available.
2. Confirm that the CVV2 code matches bank records.
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8. The PCI Security Standards Council
The Payment Card Industry Security Standards Council (PCI SSC)
was created by major credit card companies in an effort to better
protect credit card holder data.
• The PCI SSC operates a number of programs to train, test and certify
organizations and individuals to assess and validate adherence to
PCI Security Standards.
• When a company is PCI compliant, it easier to gain a customer’s
trust. [Visit the PCI SSC website for more on compliance].
• With compliance, a company is better protected against financial
liabilities including fees, fines and even potential lawsuits.
Page .06 How Credit Card Processing Works
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9. Benefits of Credit Card Acceptance
Beyond an increase in sales and eventual profits,
here are three ways your business can benefit from credit card acceptance.
Improved Customer Satisfaction.
Customers like the speed, flexibility and convenience that come from paying with
their credit card over cash.
Appeal to and Entice Impulse Buyers.
The convenience of using credit cards tends to increase the likelihood of "impulse
purchases.”
Faster Payment.
Electronic payments will enable faster payment cycles, which can lead to improved
cash flow and decreased billing overhead.
83% of businesses that
accept credit cards make
more sales than those that
don’t.
- Intuit
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10. Summary
As you get started with accepting credit cards for your own
business, make sure you understand:
» how credit card payments process
» how to choose a payment processing company
» security features your business needs
» steps that need to be taken to ensure PCI compliance
Visit Business.com for more information about credit card
processing.
Simply put, our mission is to help people grow their businesses.
This is why over 20 million buyers from small-to-medium
enterprises turn to Business.com every year to discover,
compare, and purchase the products and services they need to
run and grow their businesses.
It's also why over 10,000 advertisers use Business.com to reach
these valuable buyers, generating well over $1 billion in
incremental annual revenues.
Before you even start processing sales, your merchant
services provider will charge you a number of fees. First, there's
the account setup charge to open a merchant account, and
there's usually a monthly account charge to maintain the
account. You often have to buy or lease equipment from the
credit card processor, and there are fees for doing so. However,
accepting credit cards doesn’t have to break the bank for your
business.
According to a 2000 MIT study, credit card
users spend up to 100% more than their cash
using counterparts1.
Small businesses today may find that there are options about
credit card acceptance are decreasing. Customers want to be
able to pay with the convenience offered by credit cards, but it’s
important for merchants to understand what risks come with the
rewards of credit card acceptance.
Understand how processing fees are calculated and focus on
finding the best rate for your business.
Page .08 How Credit Card Processing Works
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1. “Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on
Willingness to Pay,” Drazen Prelec and Duncan Simester, 2000.