Credit card processing has become an integral part of modern commerce. For businesses, accepting credit card payments offers convenience to customers and can significantly boost sales. However, the behind-the-scenes process is more intricate than simply swiping a card or punching it in online. Whether selling Cannabis or running a restaurant, who you use for your credit card processing matters. In this article, we’ll delve into the mechanics of credit card processing for merchants, demystifying the steps involved in turning a plastic card into cold, hard cash.
Step 1: Authorization Request
Cannabis Credit Card Processing Company
The journey begins when a customer hands their credit card to a merchant for payment. The merchant’s point-of-sale (POS) terminal or online payment gateway sends an authorization request to the cardholder’s issuing bank, also known as the issuing institution. This request contains essential information, such as the card number, transaction amount, and other security data.
Step 2: Issuing Bank’s Response
The issuing bank processes the authorization request. It performs several checks, including verifying the available credit limit, whether the card is valid, and whether the transaction appears suspicious. Once the issuing bank has completed these checks, it sends an authorization response back to the merchant. This response can be approved, declined, or sometimes include a referral for manual review.
Step 3: Merchant’s POS Terminal
Upon receiving the authorization response, the merchant’s POS terminal displays the result. The transaction proceeds if the response is approved and the customer’s card is charged. If declined, the customer is informed that the payment didn’t go through. For a referral, the merchant might need to call the card’s issuing bank for further verification.
Step 4: Settlement and Capture
Approved transactions are temporarily authorized, meaning the funds are reserved but not transferred from the customer’s account to the merchant’s. At the end of the day or a designated settlement period, the merchant collects all authorized transactions and “captures” them. This process initiates the actual funds transfer from the customer’s bank to the merchant’s bank.
Step 5: Clearing and Interchange
The captured transactions enter a complex web of financial institutions called the payment processing network. This network includes card associations such as Visa, MasterCard, and American Express, as well as various banks and payment processors. Each transaction is “cleared” through this network, which ensures that funds are transferred correctly between the involved parties. During this process, an interchange fee is deducted to cover the costs of card processing and network services.
Step 6: Funding and Settlement
Once a transaction clears, the funds are transferred from the customer’s bank to the merchant’s acquiring bank, also known as the acquiring institution. From there, the acquiring bank deposits the funds into the merchant’s business account, completing the settlement process. It’s important to note that settlement times can vary, but merchants usually receive their funds within a few business days. (You should be getting 1 business day clearance in this day and age, so don’t stand for anything less).
Step 7: Merchant Fees
Throughout the credit card processing journey, merchants incur fees associated with the service. These fees include interchange fees (paid to the card associations), processing fees (charged by the payment processor or acquiring bank), and other assessments and charges. Merchants must understand their fee structure and negotiate favorable terms to minimize costs.
Finding the Right Merchant Service Provider
Credit card processing is an essential aspect of modern business, providing convenience and security for both merchants and customers. Understanding the mechanics of credit card processing is crucial for merchants to navigate the financial aspects of their business successfully. By grasping the steps involved in the process, merchants can make informed decisions and optimize their payment processing procedures while offering a seamless experience to their customers.
Working closely with a qualified Cannabis Credit Card Processing Company specializing in the industry makes a significant difference. At Brother Processing Solutions, we have worked with Cannabis retailers for nearly a decade. We know the industry inside and out and have helped establish some of the most successful dispensaries. Call us today, and let’s discuss your business and processing needs.
