When a customer makes a purchase at a store, the merchant sends the customer’s credit card information to a credit card processor. The credit card processor then verifies that the customer has enough money in their account to cover the purchase and approves or denies the transaction. If the transaction is approved, the credit card processor transfers the money from the customer’s account to the merchant’s bank account.
There are several different credit card processors, each with their own set of fees. The most common credit card processors are Visa, Mastercard, and American Express. Square is a popular processor for small businesses.
Most merchants accept all major credit cards, but there are a few that only accept certain cards. For example, Uber only accepts Visa and Mastercard.
Credit card processing is a secure way to pay for goods and services. The customer’s credit card information is encrypted and stored on the credit card processor’s servers. This information is not shared with the merchant or anyone else.
Credit cards are not the only type of payment that can be processed. Other types include debit cards, PayPal, bitcoin, Apple Pay, and Android Pay. Some merchants accept multiple types of payments while others only accept one or two specific forms.
How do credit card processors make money?
The majority of credit card processors charge a fee for each transaction that is processed. These fees are usually either a percentage or a flat rate of the total sale amount. For example, some processors charge 2.95% plus 30 cents per transaction.
Most processors also have monthly minimums and/or fees if their minimums are not met during the month. For example, some processors charge $25 per month, even if no transactions are processed.
The credit card processor also makes money by charging the merchant a fee for each account that is opened. This fee is usually a percentage of the total sale amount or a fixed amount per month. For example, Square charges 2.75% of each transaction for its basic service.
Some processors charge a monthly fee if the merchant does not process enough transactions to meet their minimum. For example, Payline charges $19.95 per month for its basic service, even if no transactions are processed by the merchant.
Merchants also pay fees that cover things like providing receipts and stopping payments on stolen credit cards.
Credit card processing presents a significant source of income for credit card processors. In 2015, credit and charge cards generated $3.2 trillion in revenue for the financial services industry worldwide [1]. North America accounted for more than half of all purchases made using credit cards [2], so this statistic does not include debit cards or other forms of payment.
