A credit card is one of the most important financial instruments used by customers across the globe. If you are a merchant selling a product via bricks and mortar or online stores, you will need to allow customers to make purchases using a credit card. There are not many resources available to the merchants to understand what to expect when processing credit card transactions.
Parties involved in a credit card processing transaction
It is important to understand the different parties involved in a credit card processing transaction. As a merchant, you may not be interacting with all of these parties. However, knowing the players involved in the process will help you in the long run.
Merchant: The merchant sells some product to its customers. The merchant may be an intermediary that sells someone else’s products. A typical merchant will accept dozens of transactions from multiple customers.
Acquirer: An acquirer is a fancy term used to describe the merchant’s bank. This is the financial institution that allows the merchant to setup and process credit card payments.
Association: An association is an authority such as Visa or MasterCard. These organizations usually allow the issuers to co-brand the credit card using their trademarks. They get a fixed percentage of every transaction made by a cardholder. They also act as an arbitrator to settle disputes among cardholders, issuers, merchants and acquirers. These institutions also offer the network to authorize and accept the transactions.
Cardholder: A cardholder is the customer who swipes his or her credit card to purchase products or services from a merchant.
Issuer: This is another fancy term used to describe the customer’s bank. This is the bank that issued the credit card to the customer.
What to Expect if you are a Merchant
If you are a merchant, then you will need to understand the following steps:
• Setup a merchant account with a bank (Acquirer), which is a member of an association such as Visa or Mastercard.
• Decide the credit card brands that you will allow your customers to make purchases.
• Decide the payment channels, such as point of sales, web sites, or mobile.
• Review and agree to the transaction fees charged by the Acquirer.
• Complete the merchant account setup with the Acquirer and start accepting credit card payments.