Types of Credit Cards Payments

1. Dipped Transactions

EMV (Europay, Mastercard, and Visa) is a type of credit card transaction. Here, the card is placed into the reader. The chip verifies the transaction by interacting with the terminal. Later on, the chip creates a unique code for each payment. This is a standard type of transaction in many regions.

2. Trapped Transactions (Contactless)

In trapped transactions, the card gets tapped on the reader while setting up no direct contact. It uses Radio Frequency Identification (RFID) or Near-Field Communication (NFC) or technologies that offer speed and convenience.

It sends the data in an encrypted format and provides a unique code for each transaction. This enhances the security.

3. Online and Card-Not-Present (CNP) transactions

From the name itself, we can refer to its working concept. In this method, cards are not physically presented to the vendor. Instead, remote payment takes place. An ideal example is e-commerce, where a customer makes online payments on his system through a credit card. The verification of details is done through technology. Suppliers or vendors do not use this card.

These kinds of transactions are prone to fraud. However, secure socket layer (SSL) encryption and two-factor authentication are the best solution to overcome this.

4. Digital Wallet Transactions

Digital wallet transactions offer a convenient approach to making payments. These wallets store cardholder data and enable the user to make payments from his or her device. It is a fast payment process that can be done at any time and anywhere to refine the customer experience.

Its NFC technology and tokenized transactions provide a high level of security. The security measure is biometric verification. Apple Pay and Google Wallet are the best examples of digital wallets.

5. Swiped Transactions (Magnetic Stripe)

This is a popular method in which users swipe the card on the card reader. A card features a magnetic stripe on the back, which is read by the card reader. However, it offers fewer security concerns, and due to this reason, it is at its lowest use among customers. The magnetic stripe covers the following details:

• Name of the cardholder
• Cardholder’s Account number
• Expiry date of the card
• Security code

What Is the Working Process of Credit Cards?

You might make a payment via credit card once in your life. It is a process of 2 to 5 minutes duration. However, the back-end process is not that easy. Here is the complete procedure for credit card payment.

1. Authorization

Authorization is the first step in the process of credit card payment. When the customer makes a credit card payment, the credit card network sends authorization requests to the credit card issuer bank. Users can swipe, tape, or insert the card into the reader to complete the payment. The authorization request covers the following details:

• Number of Credit Card
• Expiry date of Credit Card
• CVV number (Card Verification Value)
• Payment Amount

2. Authentication

Once the bank receives the authorization request, the next step is authentication. The bank either approves or declines after matching the details – card number, CVV number, and billing address. If anything is unmatched, it can decline the transaction. The bank can also decline the transaction when there is an insufficient balance, the card has expired, or fraud is suspected.

3. Clearance and Settlement

The authorization batches are sent to the processor. However, there is no need for such batching for the real-time batching. This can be done manually. The issuing bank transfers funds to the merchant account on the basis of a payment processor request. The merchant will get the amount when the payment is processed. The duration of completing this process is 1 to 2 days.

Credit Card Processing Fees

A general credit card processing fee is 1.5% to 3.5%, also referred to as the merchant discount rate or transaction discount rate. However, this can change as per the provider type. The fees are split up and divided into the following:

Interchange Fees:

This is, again, a non-negotiable fee that the issuing bank takes from the merchant and processor. It is usually in the form below:

2.6% + $2.54

It is an example. Here, it has a combination of a percentage part and a flat fee. The network collects the flat fee, while the bank takes a percentage part of the transaction.

Assessment Fees:

This is the fee that credit card networks charge to accept the transaction on cards. This fee is non-negotiable.

Markups:

Payment processors and banks charge some percentage of the overall fee. Business professionals can easily get the lowest price through negotiating.

What Is the Process for Accepting Credit Cards as a Small Business?

Big enterprises have a smooth and systematic approach to credit card payment acceptance. But what about small businesses? Go through the below steps when it comes to how to accept credit card payments for small businesses:

1. Selecting a Payment Services Provider (PSP)

A PSP is essential for accepting credit card payments. It acts like a junction that connects vendor, customer, and card networks. When choosing the payment services provider, you need to look for the following points:

• What technical support does it provide?
• What kind of customization concept does it offer?
• Does the system possess a user-friendly interface?
• What other advanced features does it carry?
• Is the system adaptable to the changing trends of the market?

2. Creating a Merchant Account

Small business owners need to set up a separate merchant account, which acts as a specialized bank account. With this system, businesses can effortlessly accept both credit and debit card payments. In the credit card process, it holds and retains the amount before transferring it to the business bank account.

3. Payment Gateway Integration

A payment gateway is a technology that connects a bank with a business’s website. It securely transfers the payment data. Always focus on the following points when you choose a payment gateway:

• Security features like tokenization and encryption.
• The complexity level of the payment gateway.
• Unified commerce solution that can connect your mobile, in-store, and online sales channels.
• Always look for a simple payment process that includes minimum steps.
• Look for a system that can perform well under multiple conditions like refunds, transaction failures, etc.

4. Getting Hardware and Software

Business owners must utilize the best hardware and software when accepting credit card payments for small businesses. They must choose hardware that offers durability and compatibility with multiple card types.

Similarly, choose software that offers advanced features along with inventory management. The following are some hardware and software:

Software:

• Point-of-sale Software
• Virtual terminal

Hardware:

• Mobile credit card terminal
• Countertop PO
• EMV reader

Additionally, look for the customer support features in your list when you finalize the hardware and software.

5. Security Measures

Once you have finalized the hardware and software, the next move is implementing and focusing on security measures. You must regularly check the security measures and update the same as per the latest security update.

Key Merits of Accepting Credit Card Payment

1. Offer Convenience

Using a credit card offers convenience to the user and the business in sending and receiving the payment. It’s contactless and takes less time to complete the transaction. Thus, a business avail of smooth cashflow on every deal.

2. Boost Customer’s Footsteps

About 85% of customers prefer to use credit cards for making payments. Customers get cashback offers and customer loyalty programs on their credit cards. So, business professionals can leverage it and drive more sales while enabling customers to pay via credit card.

3. Enhance Business Credibility

Customers define a business as trustworthy and professional and accept credit cards. So business professionals can easily enhance their business branding.

4. Faster and Secure Transactions

Business professionals can boost their transactions with credit card payments. This enables them to receive payment quickly. Additionally, technologies & concepts like end-to-end encryption, tokenization, multi-factor authentication, and EMV are some of the best practices for security.

What Are the Best Practices that Small Business Owners Must Follow to Handle Credit Card Payments?

Small business owners must follow the practices mentioned below to handle the credit card payment.

1. Fraud Prevention

Credit card transactions are prone to fraud. Professionals can utilize Address Verification Systems tools that match the customer’s billing address with what’s on file.

2. Compliance with PCI

The Payment Card Industry Data Security Standard (PCI DSS) is a set of guidelines designed to ensure the secure handling of credit card transactions. Business professionals must follow these rules as follows:

1. Installing and maintaining the firewall configuration
2. Never use vendor-supplied defaults for the system passwords
3. Protect the saved data of cardholder
4. Encrypt all the transmitting information of the cardholder
5. Update the antivirus software or the programs regularly
6. Implement and maintain secure systems
7. Restrict the business from accessing cardholder’s information
8. Identify and also authenticate system components accessing
9. Tracking and monitoring of cardholder data accessing
10. Restrict cardholder data from getting physical access
11. Regularly recheck the security system
12. Maintain a policy that outlines the information security for all personnel

3. Data Encryption

Data encryption is one of the best security practices for credit card payment security. This is a part of security measures that encrypt the data into an unreadable code and keeps hackers away. The common encryption forms are SSL (Secure Socket Layer) or TLS (Transport Layer Security). The encryption forms encrypt the complete data that customers enter during payment.

Final Words

Businesses can acquire many benefits while accepting credit card payments online. Business owners can gain numerous benefits from this. However, you need to take care of security and adopt a high level of security measures. So far, we have introduced a lot of valuable information about the best way to accept credit cards for small businesses; we hope you have gained enough knowledge.

Frequently Asked Questions