Key Stages of Bank Card Processing

Here are some of the key stages in Bank Card Processing...

• Authorization:
  • Initiation: A customer swipes, inserts, or taps their card at a terminal, or enters details online.
  • Routing: The payment gateway sends encrypted data to the merchant's acquiring bank, which routes it to the card network (Visa, Mastercard, etc.) and then to the customer's issuing bank
    .
  Approval/Denial: The issuing bank verifies funds and fraud risk, sending an approval or decline code back through the network to the merchant.
Settlement and Funding:
• Batching: Merchants typically submit a "batch" of daily authorized transactions to their processor.
• Transfer: The processor sends these transactions to the card network, which transfers funds from the issuing bank to the merchant's account.
• Timing: While debit transactions can be near-instant, credit card settlements usually take 1-3 business days, although some providers offer faster, often paid, options. Source

Banking 101

You are likely clear on the concept of interest – you owe more than what you borrowed when paying back over a period of time. However, the topic of interest rates might be a little murkier. There are a lot of terms surrounding interest rates that include acronyms and financial jargon, which can be confusing.

In truth, interest rates are a critical component to many of the financial decisions that we make. Borrowing, saving and spending can all be influenced by the current rates. For this latest Banking 101 piece, we will tackle the most common terminology surrounding interest rates and simplify some of the terms you might see or hear on commercials, billboards or other advertisements.

Simple Interest vs. Compound Interest

These are two of the most common interest types, and there is a key difference between the two. Simple interest is an annual percentage of the amount owed, whereas compound interest accrues or builds over time. You often hear the term “compound interest” when referencing the interest someone can earn from a savings account.

So, let’s use a savings account as an example. If a savings account has $1,000 in it at an annual 5.0% simple interest rate, you will earn $50 in interest each year as long as your original $1,000 stays in your account. Over 10 years, that $1,000 investment will have earned you an extra $500.

However, compound interest builds upon itself over time. The interest you earn from the previous year will build upon next year’s total savings. While year one will be the same as the “simple interest” scenario, in year two, you will be earning interest on $1,050 instead of $1,000. After 10 years with a 5.0% compound interest rate, you will have totaled $1,628.89, more than $100 above the simple interest rate scenario.

APR vs. APY

Both of these acronyms, APR (Annual Percentage Rate) and APY (Annual Percentage Yield), are very common amongst banks, credit unions, mortgage companies and other financial institutions when advertising their rates. APR refers to the yearly interest rate that the borrower assumes on a loan or the rate you earn before compounding interest if you lend it.

You’ll often see APR used alongside credit cards, mortgages, car loans or personal loans.

Meanwhile, APY refers to the rate which your money grows in a year when factoring in compound interest. APY is most often used when highlighting savings accounts such as money market accounts or certificates of deposit (CDs).

Fixed Rate vs. Variable Rate

This terminology is fairly easy to explain in the context of a home loan.

A fixed interest rate loan is a loan where the rate remains constant during the entire term of the loan. So, if you get a 30-year fixed rate home mortgage, the interest rate will be the same in year 1 as it is in year 30, with no change in between.

A variable rate loan, on the other hand, fluctuates throughout the term of the loan based on how market rates change, and often correlates directly to US Treasury rates (more on that below). Having a variable interest rate on your home loan could result in a lower introductory rate but will increase in a growing rate environment or could decrease in a declining environment.

In certain situations, a loan may start off with a fixed rate but then convert to variable at some point in the future.

Prime Rate vs. Federal Funds Rate

Now that we have the basics of some common interest rate terminology down, let’s get a little more complex with the prime rate vs. the federal rate. Both rates are benchmark rates that financial institutions use to set their own interest rates.

The federal funds rate is set by the Federal Reserve Open Market Committee (FOMC) at their periodic meetings.   It’s based on a multitude of factors including inflation, employment indicators and the general state of the economy. The FOMC meets eight times a year to establish that rate with a primary goal of keeping the U.S. economy steady. Currently, this rate sits in a range of 3.75% to 4.00%. The Fed Funds rate is generally the rate banks borrow funds on an overnight basis, and it is often tied to the APYs offered on various money market, savings accounts and CDs.

You may have seen recently that the Fed Fundsrate was lowered by 0.25% in each of their September and October FOMC meetings.  These changes affect the next rate we will dive into – the prime rate.

The prime rate is often a starting point for Banks when setting the rate for its most creditworthy customers and is typically set at 3% above the Federal Funds rate.  There are numerous other indexes banks use in setting rates for small business loans, mortgages, credit card, auto and personal loans.  Some of these you may have heard of, including Federal Home Loan Bank (FHLB) and US Treasury Note rates and the Secured Overnight Financing Rate (SOFR).

Source

How to Resolve Customer Disputes — and Reduce Chargebacks

Though payment disputes can be frustrating, you should respond to them promptly, says Lamar. “Start with the customer,” he suggests. “Many friendly fraud issues are related to customers who have an issue with their purchase but think it may be easier to dispute rather than working directly with the merchant.” It’s also important to collect proof that transactions were authorized by the cardholder, especially for e-commerce purchases. The more evidence a merchant can provide to support the legitimacy of a transaction, the better their chance of overturning a chargeback. Should you fail to respond — or the dispute is found in the customer’s favor — the funds will be returned to the customer.

The following tips can help reduce the frequency of chargebacks:

• Obtain proper authorizations for all card transactions, such as customer signatures, PINs, address verification or CVV codes (three to four digits found on the front or back of the card).
• Ensure all transactions are approved (not declined) by the issuing bank.
• For online purchases, verify that the cardholder was advised of the purchase details and given the option to confirm or cancel at the time of the transaction. 
• Wait to process transactions until the merchandise is shipped or delivered.
• Ensure all transactions are processed accurately with the proper transaction code and in a timely manner.
• Make sure your registered business name on the payment system matches or is at least similar to the one on the cardholder’s statement.
• Obtain the customer’s or other designated person’s signature for proof of delivery when merchandise is delivered. 
• For subscription-based transactions, obtain customer acknowledgment and agreement to your recurring transaction agreement, and provide notice to the cardholder prior to each recurring transaction.

When you’re running a business, chargebacks are inevitable. But if you’re prepared, you can reduce their frequency. Source

What Are Digital Payments?

Digital payments are financial transactions that happen electronically without using physical cash or paper checks. These transactions rely on digital devices such as smartphones, computers, tablets, or payment terminals connected to the internet or other digital networks. A digital payment occurs any time money moves electronically from one person or business to another. This includes payments made through card networks like Visa or Mastercard, mobile apps such as Apple Pay or Google Pay, direct bank transfers, or digital wallets.

Unlike traditional payment methods, digital payments happen without exchanging physical items. They are processed quickly, can be tracked in real time, and often connect directly with business systems for easier recordkeeping.

Common examples of digital payments include:

• A customer tapping a phone to pay at a coffee shop
• A business paying a supplier through an online bank transfer
• An online shopper checking out with a saved credit card
• Friends splitting a dinner bill using a peer-to-peer app like Venmo

Source

Two Businesses Comparison

Why Two Businesses With the Same Sales Can Pay Very Different Processing Fees

It’s a question many business owners ask after comparing notes with peers: “We process about the same amount in sales—so why am I paying more in processing fees?”

The answer is that merchant services pricing isn’t one-size-fits-all. Two businesses with nearly identical sales volume can end up paying very different amounts based on how their payments are set up, how transactions are processed, and what fees are built into their accounts. Here’s why.

1. Pricing Structures Matter More Than You Think

Not all merchant accounts are priced the same way. Some use flat-rate pricing, while others use tiered or interchange-plus models. On the surface, rates can look similar—but the way fees are applied behind the scenes can make a big difference in total cost.

A business with a transparent pricing structure may pay less overall than one with a slightly lower advertised rate that includes hidden or padded fees.

2. How Payments Are Accepted Impacts Cost

The way customers pay matters. Card-present transactions (where a card is tapped, dipped, or swiped) generally cost less than keyed-in or online transactions. If two businesses have the same sales volume but one keys in more transactions, their fees are likely higher.

Security measures like EMV chip and contactless payments can also help reduce costs and risk.

3. Extra Fees Add Up Quickly

Processing fees aren’t just about rates. Monthly charges, statement fees, batch fees, PCI fees, equipment costs, and other line-item charges can quietly increase your total expense.

One business may have fewer add-on fees, while another pays several small charges that add up over time—even if their sales are the same.

4. Business Type & Risk Profile Play a Role

Certain industries are considered higher risk by processors, which can affect pricing. Even within the same industry, differences in transaction size, refund frequency, or chargebacks can influence costs.

Two businesses may look similar on paper, but their processing history can lead to different pricing outcomes.

5. How Often Accounts Are Reviewed (or Not)

Many businesses set up merchant services once and never revisit them. Over time, pricing changes, businesses grow, and better options become available. Without regular reviews, businesses often end up paying more than necessary.

A periodic review can uncover outdated pricing models or fees that no longer make sense.

The Takeaway

• Same sales doesn’t mean same fees. The details behind your merchant account—pricing structure, transaction methods, and added fees—can dramatically impact what you pay each month.
• That’s why a simple review of your current merchant services can be eye-opening.
• Understanding how your account is set up puts you in a better position to control costs, improve transactions, and make sure your payment processing is truly working for your business.

FREE New Year Payment Review

 Kick off the year with clarity.

Schedule a FREE review of your current merchant services to see where you can save, simplify, or improve how your business accepts payments.

Contact Me Now

How to Improve Your Financial Decision Making?

What is Financial Decision-Making?

Financial decision-making encompasses evaluating options, making choices, and taking actions related to financial matters. It involves assessing risks, considering available resources, and aligning decisions with long-term objectives. Effective decision-making is essential for financial success, whether managing personal finances or steering a business toward profitability.

Financial decision-making is a crucial aspect of business management. It involves choosing between available alternatives to achieve financial goals. From budgeting to investment choices, every decision impacts financial stability and growth.

Why is Financial Decision-Making Important?

Financial decision-making plays a pivotal role in achieving financial stability and growth. It allows businesses to:

• Allocate resources efficiently
• Mitigate financial risks
• Maximize ROI
• Adapt to changing economic conditions
• Achieve long-term financial goals

Financial resources may be mismanaged without sound decision-making, leading to financial setbacks and missed growth opportunities.

What Financial Decision-Making Strategies Can You Use?

To make informed financial decisions, businesses use different strategies, including:

• Setting financial goals: Clear and achievable financial goals provide a roadmap for financial decision-making. Defining objectives helps prioritize actions and allocate resources effectively.
• Budgeting and forecasting: Budgeting involves estimating income and expenses over a specific period to ensure that financial resources are allocated wisely. Forecasting helps anticipate future financial trends and plan accordingly, minimizing surprises and facilitating proactive decision-making.
• Risk management: Assessing and managing risks is integral to financial decision-making. By identifying potential risks and implementing mitigation strategies, businesses can safeguard their financial well-being and confidently pursue opportunities.

How to Make Better Financial Decisions?

Making sound financial decisions requires a systematic approach and careful consideration of factors such as:

• Gather information: Before making a decision, gather relevant information from credible sources. Analyze financial data, market trends, and potential risks to make well-informed choices.
• Evaluate options: Consider multiple alternatives and evaluate their potential outcomes. Compare each option's costs, benefits, and risks to identify the most suitable action.
• Consider long-term implications: While short-term gains may seem appealing, consider the long-term consequences of your decisions. Assess how each choice aligns with your overarching financial goals and objectives.

 Source