The actual state in credit card processing industry can be complicated. There are many players and the process is hard to understand or dealt with. To fully comprehend each transaction, you must have to identify which companies are involved or how much a company charge a transaction.
Players who are involved in every credit card transactions are customers, merchants, acquiring bank processor, payment gateway, credit card interchange, merchants acquiring bank and customer’s credit card issuer. These seven players are always present and do interact in every credit card transactions. But, even though different companies are involved, it may only take 3 seconds to approve every transaction.
Let’s follow the flow of money as you purchase a product using your credit card. For example, your customer bought a $100 worth of product in your online store. Once he agrees to buy the product by simply clicking the buy button, several companies will start to process the transaction and you should pay their services. Fees can be based upon which card or merchant type you own. Also, rates of their services can range up to $3.
This is how it goes. First route, it encounters the payment gateway for 10 cents. Next, destination goes to the processor for 0.8 cents. The processor sends it to the credit card interchange for 0.9 cents. Once it is cleared in the interchanged, it goes to the issuing bank for 1.93 cents. Then, it verifies the account of the cardholder which is the place that determines if the process should be approved or should be declined. Later, a charge of 65 cents is deducted from the merchant account in your bank where you deposited your money. The remaining balance you will receive from the $100 paid by your customer would be $97.15.
Here is one fact in e-commerce. Nothing is free in one’s life. These credit card processor companies get a pay for every transaction you made. Visa and Master card may charge a service fee depending on the type of merchant business you use. It can be from a car dealership, a grocery, a work out gym and a rock band. It is based on the merchant’s average profit where the interchange of prices happens.
For instance, grocery stores have a big difference than car dealership in every credit card transaction. This is due to the fact that a car dealership has higher amount during payment in every deal compared to small time businesses (like grocery stores). There is an interchange price of credit card processing fee in every business. This is the actual state in credit card processing industry today.