• stephen walsh

How Credit card processing works

This blog will give you a quick overview of how credit card processing works. This includes definitions of terminology we use and best practices when it comes to chargebacks.

What is a merchant account?

A merchant account generally is set up by a credit card processing company or bank to accept and process charge card orders. A business can not accept credit card payments with any of the major card brands with out one.

How does a business get an account?

Businesses must apply for a merchant account via application process with a merchant acquirer financial institution. The application is underwritten so that its based on the credit worthiness of a business and will asses the risk. Having supporting financial documents will help get you approved, however start ups will need an extensive business plan that outlines the sales of your venture.

What type of card can i accept?

Merchants that are approved will be able to accept all major card brands including: Visa, Mastercard, American Express, Discover, Diners Club, JCB, as well as all major charge (DEBIT)cards. If you're looking to start accepting please credit cards for your business, Contact Bespoke Bancard Solutions at 1-888-307-4633

What is an issuer?

The issuing financial institution extends credit to a cardholder through bankcard accounts. The financial institution issues a credit card and bills the cardholder for purchases against the bankcard account. Also referred to as the cardholder’s financial institution.

What is an acquirer?

An Acquirer is a Visa / MasterCard Affiliated Bank or Bank/Processor alliance that is in the business of processing credit card transactions for businesses and is always Acquiring new merchants.

How much are card processing fees? Interchange fees are the whole sales cost that visa and Mastercard and the major card brands set and pass on the the acquire or ISO which is then pass on to the customers with a small mark up. The discount rate is the mark up above interchange and there are transaction fees, monthly fees and other fees. This is a level playing field for processors and banks as we all get the same cost. Many factors that influence interchange fees such as whether or not you swipe the card or key in the transactions. Card-present & card-not-present. The card brands look at this as a risk factor. If the card is present and being used by the customer and he signs the receipt, the fee would be less as opposed to keying in the credit card info over the phone. Merchants that swipe transactions pay less in interchange.


Essentially, a chargeback fee occurs when a cardholder disputes the sale with their card issuing bank. This is not to be confused with a refund, which is simply a merchant refunding a transaction. With chargebacks the card issuing bank sends through a request to recover money for their cardholder. The merchant agrees to pay a chargeback fee (usually between $25-$50), for each chargeback that the bank deems valid. The most common complaint for a chargeback is that the cardholder cannot remember the transaction. However, the chargeback ratio is very low for transactions in a face-to-face (POS) environment.

If you need help with anything regarding accepting credit cards, please contact us and we'll help and get your business dialed in.

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