Why the Lowest Processing Rate Isn’t Always the Least Expensive

When shopping for merchant services, it’s tempting to choose the provider with the lowest advertised processing rate. But in reality, the lowest rate doesn’t always mean the lowest overall cost for your business.

Here’s why:

1. Hidden Fees Add Up

Some processors offset low rates with extra charges—monthly fees, statement fees, PCI compliance fees, batch fees, and more. Over time, these costs can outweigh the savings from a slightly lower rate.

2. Tiered Pricing Can Be Misleading

Introductory rates often apply only to a small portion of transactions. Many cards or transaction types may fall into higher tiers with much higher rates.

3. Poor Service Costs You Time and Money

A processor with rock-bottom rates but poor customer support can leave you waiting days for help or dealing with costly downtime. Fast, reliable service is worth paying a little more for.

4. Technology and Integration Matter

A system that integrates smoothly with your business saves time and prevents errors—value that goes far beyond the rate per transaction.

At Bankcard Processors, we focus on total value—transparent pricing, reliable technology, and responsive service—so you get the best overall return, not just the lowest number on paper. The cheapest rate isn’t always the smartest choice, but the right partner always pays off.

What Are the Three Parties Involved in Credit Card Processing?

Understanding the three key parties involved in credit card processing is important for business owners looking to streamline their payment systems. These parties include the merchant, the issuing bank, and the acquiring bank. With help from a reliable credit card processing company, businesses can effectively manage these complex transactions.

In Person Payment Processing Provider

An in-person payment processing provider allows businesses to accept credit card payments at physical locations through point-of-sale systems. Whether it’s a traditional card swipe, EMV chip, or contactless payment method, this provider ensures that the transaction is securely facilitated. Working alongside a contactless payment service provider, merchants can offer modern payment solutions that meet the evolving needs of consumers. These providers serve as the bridge between the merchant and the cardholder’s bank, enabling efficient transactions.

Key Parties in Credit Card Transactions

The three main parties involved in any credit card transaction are:

1.) Merchant

The merchant is the business or seller that provides goods or services and accepts credit card payments. Merchants need a processing service to handle these payments and ensure the funds are transferred securely and quickly to their accounts.

2.) Issuing Bank

The issuing bank is the financial institution that provides the credit card to the consumer. This bank is responsible for authorizing the transaction, ensuring the cardholder has sufficient credit to cover the purchase. Additionally, the issuing bank handles the collection of payments from the cardholder when the credit card bill is due.

3.) Acquiring Bank

The acquiring bank is the financial institution that works directly with the merchant. It facilitates the transfer of funds from the issuing bank to the merchant’s account, after deducting applicable processing fees. The acquiring bank also provides merchants with tools and services needed to process credit card transactions, whether in person or online.

Three-Party Credit Card Process Explained

When a credit card transaction takes place, the process involves several steps. First, the cardholder provides their credit card information to the merchant, either in person, online, or through a contactless payment method. The merchant’s system communicates with the issuing bank, which then verifies whether the cardholder has sufficient funds or credit available. If the transaction is approved, the acquiring bank processes the payment, transferring the funds from the issuing bank to the merchant’s account. While this process happens within seconds, it involves multiple parties working in sync to ensure the transaction is successful.

Understanding Credit Card Processing Roles

The three key parties in a credit card transaction each play distinct but interdependent roles. The issuing bank’s primary responsibility is to ensure that the cardholder has sufficient credit or funds available and to authorize the payment accordingly. The acquiring bank ensures the merchant receives the payment by processing the transaction and deducting any necessary fees. Meanwhile, the credit card processing company acts as the intermediary, facilitating the transaction between the merchant, the issuing bank, and the acquiring bank, while ensuring security and compliance with payment industry standards.

Roles in Credit Card Transactions

In summary, here’s how the roles break down:

• Merchant: Initiates the payment process by accepting the customer’s credit card information and transmitting the data to the processing company.
• Issuing Bank: Approves or denies the transaction based on the cardholder’s available funds or credit.
• Acquiring Bank: Facilitates the transfer of funds from the issuing bank to the merchant’s account, ensuring the merchant gets paid for their services.

These three parties collaborate to ensure that credit card transactions are processed smoothly and securely, benefiting both the merchant and the customer. Source

Credit Card Processing Best Practices

With cashless transactions on the rise, businesses should take a strategic approach to credit card payments. By carefully considering their payment processing systems and practices, businesses can reduce costs, minimize risks and enhance the customer experience. Businesses that need to create a frictionless, secure and integrated credit card payment system should follow these best practices:

Align your approach to your sales channels

There isn't a one-size-fits-all credit card processing strategy for every use case. For example, a platform business supporting a large number of users that need to accept in-person credit card payments in a number of global markets will have different requirements to an e-commerce retailer that doesn't operate any in-person sales channels. Understanding your specific needs will allow you to uncover the best options for your business.

Implement fraud-prevention measures

Most credit card processing solutions have fraud prevention built in. However, businesses still need to make sure that they are protected against fraud, depending on where and how they conduct transactions. You can use basic tools – such as address verification service (AVS) and card verification value (CVV) checks – in addition to advanced fraud-detection software to minimize the risk of fraudulent transactions.

Monitor and analyse transactions

Review your transaction history on a regular basis to detect unusual patterns, identify potential issues and refine your processing strategy. Make sure that your payment processor offers this type of monitoring.

Create clear and accommodating refund and chargeback policies

Establish transparent and fair refund and chargeback policies to reduce disputes, maintain customer satisfaction and avoid unnecessary fees.

Offer multiple payment options

Cater to a wide range of customer preferences by providing multiple payment options, including credit cards, debit cards, digital wallets and other alternative payment methods. This doesn't mean that you need to accept every payment method. Instead, conduct research into how your customers prefer to pay and which payment methods are most commonly used with the types of products and services that you offer.

Maintain up-to-date hardware and software

Keep your POS systems, payment gateways and other processing components updated to ensure smooth operations, enhanced security and improved customer experiences. Source

Types of Credit

There are three main types of credit that influence your credit history: revolving credit, installment credit, and service credit. Your creditworthiness is determined by the mix of the types of credit you use, as this allows borrowers to assess your reliability in different ways. We cover each type of credit in more detail below.

1.) Revolving Credit

Revolving credit is most often associated with credit cards, but can also apply to lines of credit attached to checking accounts or home equity lines of credit (HELOCs). Revolving credit means the lender assigns you a credit limit which is often based on your creditworthiness. The lender can increase or decrease your credit limit based on factors such as payment history.

As consumers pay down their balance each month, they can make further charges to that credit account up to the limit. If you’re working on building your credit history, it’s a best practice to pay off your balance in full each month, which also prevents you from going into debt.

2.) Installment Credit

Installment credit is a loan for a specific amount of money that the borrower makes payments toward over time. Common types of installment credit include mortgage loans, vehicle loans, student loans, and other personal loans. The interest rates on installment credit are often fixed throughout the life of the loan, unlike interest rates on revolving credit, which can fluctuate.

3.) Service Credit

There is no such thing as a no-risk investment. Investment scammers, however, will do their best to appeal to investors’ desires to make a lot of money without risking their initial investment. Licensed investment brokers are very transparent about the fact that all investments carry inherent risk.

Service credit is different from revolving credit and installment credit in that you’re borrowing money for utility services. Utility companies who provide electric, gas, water, or other services create contracts with you in the understanding that when they provide services, you’ll pay for those services at the end of the month after you’ve used them. This is why the payment history on your utility bills is included in your credit reports. Source

What Is Credit and Why Is It Important?

What is Credit?

Simply put, credit is the trust you build that allows lenders to see you as a viable borrower. As a consumer, credit is your ability to borrow money and prove yourself reliable to someone else on the assumption that you’ll pay them back in the future. Your credit history is an indication of your creditworthiness, so if you have “good credit”, you’ve demonstrated yourself as a reliable borrower.

A person with little or no credit history will have a more difficult time getting approved to borrow money from a financial institution or lender because they haven’t yet demonstrated their trustworthiness as a borrower. He/she may be perfectly able to pay back a loan, but there is no record of their credit history to assure lenders of their ability to do so.

Credit Reports Versus Credit Scores

There are several ways lenders may assess you as a potential borrower, with two of them being your credit reports and your credit scores.

Credit reports are detailed records of your financial history, including:

• The credit accounts and outstanding loan balances you have open
• The amounts of any loans you’ve taken out or credit you’ve utilized
• Your payment history on debt balances
• Your payment history on utility accounts
• Any severe financial difficulties you’ve faced such as bankruptcies, mortgage foreclosures, or vehicle repossessions

In the United States, every person has three credit reports on file, one from each of the three major credit bureaus: TransUnion®, Experian®, and Equifax®. Lenders typically report activity on consumers to one or more of the three credit bureaus. So while your reports should contain similar information, there may be minor differences among them. (Large differences warrant further investigation, as they may indicate a mistake or fraud on your report.)

In addition to credit reports, lenders may also use credit scores to further determine their lending decisions. Your credit scores are essentially a summary of the information on your credit reports in the form of a three-digit number. Like your credit reports, you also have more than one credit score (depending on the company who calculates the score). There are two main credit scoring systems used in the US: FICO® and VantageScore®. FICO is the most common score used by lenders. FICO scores range from 300 to 850, with good credit scores ranging 670 to 739, great credit scores ranging from 740-799, and exceptional scores ranging from 800 to 850.

FICO credit scores are determined by a number of interrelated factors, with some carrying more weight than others. FICO calculates your score based on your payment history, the amount of debt you owe, the length of time you’ve had open credit accounts, the mix of different types of credit you use, and the number of new credit inquiries on your report. When it comes to credit scoring, having the right kind of financial activity matters. No activity in one or more of the five scoring categories will negatively impact your score, while too much activity may also have negative consequences. To build good credit, you essentially need to demonstrate responsibility by having some activity in all five categories.

Why Is Credit Important?

As stated above, building a good credit history gives you financial power and access to opportunities you wouldn’t have otherwise. Although credit cards aren’t a replacement for a solid emergency fund, having access to credit cards with decent credit limits can give you some peace of mind that if an emergency does occur, you’ll be able to cover yourself.

Equally important, there are other reasons why building good credit history is important. Building good credit history provides you with:

• The ability to qualify for mortgages and vehicle loans
• Access to lower interest rates and better loan terms
• Good standing in the eyes of employers and landlords
• Better insurance rates

Ability to Qualify for Mortgage and Vehicle Loans

Homes and vehicles are expensive, and most people don’t have the ability to pay for these big-ticket items with upfront funds. (Interestingly, there are sometimes compelling reasons not to do so.) Therefore, having sufficient credit history is essential if you ever want to qualify for these types of loans. Without credit history, lenders have no way of determining your ability to repay, so they simply won’t take the risk of lending you money. And because building credit history takes time, it’s important to start doing so well before you plan to purchase a home or finance a vehicle.

Access to Lower Interest Rates & Better Loan Terms

Not only does good credit allow you to qualify for loans, but the better your credit, the better terms you’ll be offered on these loans. If your credit meets the criteria for the lowest possible interest rate, you could end up paying much less in interest over the life of the loan. Depending on the lender requirements, the terms you’re offered might differ significantly from a person who has a credit score just 20 points higher.

For example, let’s say you have a credit score of 650 and you qualify for a vehicle loan of $30,000 to be repaid over 60 months (FICO considers a credit score of 650 to be “fair”). You might be offered an interest rate of 6.61%, which means your monthly payment would be $588.53. Over the life of the loan, you would pay $5,311.80 in interest.

A credit score of 670, however, (just a 20-point increase) could possibly lower your interest rate substantially (for instance, to 3.48%), resulting in a monthly payment of $545.48. Even if a monthly difference of $43.05 doesn’t seem like much, you would only pay $2,728.80 over the life of the loan! That’s a savings of over $2,500 in interest— just for a 20-point increase in your credit score.

Good Standing in the Eyes of Employers & Landlords

Lenders aren’t the only ones who check credit scores. Oftentimes, employers or landlords will also run a credit check, not because they’re lending you money, but because good credit scores can be indicative of the ability to make regular, timely payments. When the job market or demand for rental properties is highly competitive, a good credit score can sometimes be the deciding factor between you and another candidate.

Better Insurance Rates

Insurance companies may also run credit checks on people who submit insurance applications. Creditworthiness is just one factor insurance companies use to assess when creating a new policy. While you don’t have to have perfect credit to be approved for an insurance policy, your credit score may influence the rates you’re offered.

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What is A Payment Processor?

A payment processor is a company that manages the credit card transaction process, acting as a kind of mediator between the bank and the merchant. Put simply, the payment processor communicates information from your customer’s card to your bank and the customer’s bank. Assuming there are enough funds, the transaction goes through.

There are a broad range of fees associated with payment processors, including start-up fees, transaction fees, chargeback fees, termination fees, and lease charges for credit card processing equipment (generally, the third-party payment processor provides the equipment you use to accept card payments, including the credit card machines). However, if you want to accept credit or debit card payments from your customers, there’s really no other option. Bear in mind that “payment processor” isn’t a universal legal term, and in some cases, it’s used interchangeably with terms like “payment service provider” or “acquirer”. 

How does the payments process work?

The payments ecosystem is confusing, with many different terms and nomenclature to get used to. But the whole thing is relatively simple. If you’re still not totally sure what happens when your customers pay using credit or debit cards, here’s a simple step by step guide:

1.) The customer completes the checkout process and chooses to pay by credit or debit card, submitting their cardholder details.

2.) Then, the merchant transfers the financial information, including the cardholder details, to the payment gateway.

3.) After receiving the transaction details, the payment gateway transfers the information to the third-party payment processor used by the merchant.

4.) Next, the payment processor will transfer the transaction information to the card network (i.e. Visa or MasterCard).

5.) The card network will transfer the transaction information to the customer’s bank, which checks whether there are enough funds in the account to complete the transaction.

6.) A response is then submitted to the card network, detailing whether the transaction has been approved or declined.

7.) The response is then relayed by the card network to the payment processor. The payment processor relays the response to the payment gateway, informing the merchant and the customer of the response.

8.) Finally, the funds are deposited by the customer’s bank into your merchant account, where they will sit for an agreed period before they are paid into your business bank account.

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How to Protect your Business from Credit Card Fraud

 

What is credit card fraud?

Credit card fraud is the unauthorized use of a credit card or credit card details to make purchases or withdraw funds. It affects both consumers, who may face stolen funds or identity theft, and businesses, which may bear financial, reputational and operational losses.

Credit card fraud targets businesses through fraudulent transactions, chargebacks, or the exploitation of weak security protocols. Such fraud may use stolen cards, counterfeit cards created using cloned card data, or digital data that’s been obtained from account takeovers, phishing or hacking. Credit card fraud is a critical issue for businesses that requires robust preventive measures to minimize financial loss, safeguard reputations and build customer confidence. After a review of the types of fraud your business faces, this guide will outline the ways you can prevent fraud.

Common types of credit card fraud targeting businesses;

1. Card-not-present (CNP) fraud

This fraud occurs in transactions where the cardholder isn’t physically present, such as online, over the phone or by post. For example, a high-value online order is placed using a stolen credit card, but the business does not verify the cardholder’s identity. The legitimate card owner disputes the charge, leading to a chargeback.

2. Friendly fraud

This is when a customer falsely disputes a legitimate transaction by claiming they never received the goods or didn’t authorize the purchase in the first place. For example, a customer orders a product, receives it, but is not happy with it. Rather than go through the hassle of making a return they simply contact their bank to file a chargeback claiming non-delivery.

3. Counterfeit cards

Skimming devices can be discretely added to ATMs or point-of-sale terminals and used to copy card data. This can then be embedded into fake cards. For example, a criminal uses a counterfeit card in-store, leaving the merchant liable when the bank identifies the transaction as fraudulent.

4. Account takeover

Hackers gain access to customer accounts through phishing emails or data breaches. They use the data they gain to make unauthorized transactions, often changing the login passwords to lock out the original user. For example, stolen data is used to access a customer’s account and place multiple orders. This bypasses security measures due to using stored payment details from the account.

5. Refund fraud

Lenient return policies can be exploited by using stolen payment methods to purchase items and request refunds to the fraudster’s own account. For example, a scammer may purchase high value electronic devices with a stolen card and then request a refund to a different card.

6. Merchant fraud

This involves fake businesses processing fraudulent transactions, often as part of a money-laundering scheme. For example, an online store is set up to process stolen card payments and it disappears before customers are aware their card has been used.

How to Prevent Credit Card Fraud as a Merchant

Although the fraud landscape is constantly changing, much of the fraud that takes place relies on exploiting weaknesses in the prevention and protection strategies that businesses have implemented. 

Effective fraud prevention requires an approach that combines technology, policies and employee training. In this section we outline the measures you should have in place.

1. Use advanced payment gateways

Payment gateways with fraud detection features built into them can flag suspicious transactions in real time using machine learning and AI to identify them and keep pace with the changing landscape.

Features may include:

• Address Verification Systems (AVS) to verify that the billing address matches the cardholder's address.
• CVV checks to ensure the customer has the physical card.
• Algorithms to monitor transactions in real time and flag any unusual patterns or activity identified.

2. Implement 3D Secure protocols

3D Secure adds an extra authentication step to online transactions, reducing the likelihood of card not present fraud. Examples include Verified by Visa and Mastercard SecureCode.

3. Monitor transactions

Your payment gateway may include the ability to use analytics to identify unusual patterns or known high-risk factors, such as:

• Orders from certain countries
• Multiple purchases made in quick succession
• Mismatched billing and shipping addresses

4. Train employees

Equip staff with the skills and knowledge so that they can recognize suspicious activities. This may include:

• Customers refusing to provide ID for large purchases
• Suspicious card behavior, such as declined attempts followed by approval on a different terminal

5. Ensure PCI DSS compliance

The Payment Card Industry Data Security Standard (PCI DSS) establishes guidelines for securely handling cardholder data. Compliance requires businesses to implement robust security measures such as encrypting sensitive information, maintaining secure systems and monitoring access to payment data. Non-compliance can result in fines and leaves your business open to increased risk of fraud.

6. Define strict refund policies

Implementing strict refund policies is a critical step in fraud prevention.

• You should clearly limit refund eligibility to verified transactions by requiring a proof of purchase, such as an original receipt or transaction ID.
• Your refund timelines, conditions and acceptable reasons should be clearly stated in your policy.
• In addition, you should have a return verification process in place, such as matching billing information and confirming the original payment method.

7. Regularly update security systems

Outdated software is vulnerable to attacks. Ensure any software you use has patches applied promptly and is using encryption to protect sensitive data. Source