Last editedApr 20223 min read
Credit card payments are more popular than ever with the boom in online and mobile shopping. If you’re not offering this payment method to your customers, you’ll be missing out on significant sales. Yet as you start comparing credit card processing services, you’ll see that there’s a multitude to choose from. What are the best online credit card processing companies, and how do they work? We’ll break it down for you below.
Parties involved with credit card processing
A credit card transaction involves a buyer and seller, but it’s a bit more complicated than that. To get started, it’s helpful to define the main players involved in any credit or debit card transaction:
The cardholder is the consumer who wishes to pay for the transaction. Their credit or debit card is issued by a bank.
The issuing bank can be a bank or any other financial institution that issues the card to the cardholder via a card association.
The card association refers to the big credit card names like Visa and Mastercard. Each association has its own regulations to follow.
The merchant refers to the business that accepts credit card payments in exchange for its goods and services.
The merchant bank is the financial institution that manages merchant accounts. These enable merchants to accept credit card payments and are separate from a regular business account.
The payment processor is the third-party service that processes credit and debit card transactions. They serve as a link between the merchant, merchant bank, cardholder, and card network.
How does credit card processing work?
Now that we’ve outlined the parties involved, here are the steps involved with credit card processing:
Step 1: Authorisation
The cardholder presents a card to the merchant when they wish to make a purchase. The merchant will send an authorization request (usually via a payment gateway) to a payment processor. The payment processor submits the request to the card association, where it’s transferred to the issuing bank. The issuing bank will look at details including account balances, card numbers, and other details to approve or decline the transaction.
Step 2: Settlement
What happens once a card payment is approved? Merchants send their authorised transactions in batches to the processor, who passes these on to the card associations and issuing banks. The issuing banks charge the cardholder’s accounts for the amount in question.
Step 3: Funding
Finally, the issuing bank will transfer the transaction amount back to the merchant bank. At this stage, it will also deduct any applicable credit card processing fees. The merchant bank takes these settled funds and deposits them into the individual merchant account.
While online credit card processing authorisation only takes a matter of seconds, it can take a day or more for settlement and funding.
Understanding credit card processing fees
Credit card processing fees vary widely, starting with the different pricing models. Some processors charge a flat rate, while others will offer tiered pricing models. Additional fees to be aware of include:
Next-day funding fees
Monthly minimum fees
PCI compliance fees
Address verification fees
Some online or mobile credit card processing companies will charge all these fees, while others will have discounted rates.
Top 3 credit card processing services
There are dozens of credit card processing companies out there, but here are a few of the top choices in 2021.
Square is a mobile credit card processing company that enables you to accept payments online and in-store using your mobile device. It comes with free POS software, which stands out from competitors which charge a separate fee. There are multiple equipment set-ups to choose from, whether you need a contactless chip reader or magstripe reader and stand. Square is fully PCI compliant and is compatible with all major credit cards.
Another top contender for best processor is Stripe. Its software includes hundreds of integrations, with custom pricing models to help you find the best fit for your business. This includes flat-rate pricing if you want to keep it simple. Stripe accepts all major cards, including credit and debit card payments in over 100 currencies and mobile wallet payments.
PayPal is top of the list for its widespread familiarity. This online credit card processing service is particularly useful for small businesses due to its ease of set-up. You won’t need to purchase any pricy POS equipment, and it’s now compatible with both cryptocurrency and mobile wallets as well as traditional credit card payments.
The bottom line
The examples above are just a few of the top online and mobile credit card processing companies. It’s always best to shop around to find a suitable fit, not only in terms of pricing and compatibility but also security. You’ll want a system with multiple security layers that’s PCI compliant. You’ll also want a processor that’s easy to integrate with your existing payment gateway.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices.
By bypassing the cards network, GoCardless leverages bank-to-bank payments to deliver payments on time and with reduced costs, across its global system. Find out how GoCardless can help you with ad hoc payments or recurring payments.