I would first like to explain
just how this industry operates with a credit card transaction and what happens
to that transaction when it is Visa or MasterCard.
Visa U.S.A. Inc. (Visa) and
MasterCard International Inc. (MasterCard) are associations of banks that
electronically exchange sales drafts and chargebacks for credits and
debits. These two corporations are
called Associations. These sales drafts or transactions are
electronically transferred from banks that acquire them from merchants such as
you. Commonly, the transactions are
transferred through credit card terminals or software POS programs of retail
merchants. These banks are referred to
as Acquirers.
From these acquirers, through
the appropriate Association, Visa or MasterCard, then to the bank that issued
the Cardholders credit card. These
banks are referred to as Issuers. The
Issuing banks then bill their cardholders for the transactions. The Associations charge the acquirers
interchange fees and assessments for submitting transactions into their systems. Then the Acquirer charges the merchant.
These charges to the
Acquirers of interchange fees and assessments are what we in the industry call
our buy rate or the cost that is paid to transact the transaction. You can relate this cost the same way that
you must pay for your goods or services in your place of business. So a substantial portion of the discount or
transaction fees that you pay will go toward these fees and assessments with
the difference going towards the profit for the Acquirers. In order to speed up the payment process, the
Issuer transfers the funds back through the Association to the Acquirer at
approximately the same time that the Issuer receives the electronic Sales
Drafts.
The Associations have
developed rules and regulations that govern their member banks in the
procedures, responsibilities and allocation of risk for this process. The Association rules and gives cardholders
and issuing banks certain rights to dispute transactions, even long after
payment has been made to the merchant. These disputed transactions are called,
Chargebacks, which I will explain in more detail later and to help you
eliminate these possible costs.
What is important to the
merchant on the initial start-up is that the merchant is set up correctly by
the bank, ISO (independent service organizations) or processor so that they
will pay the minimum amount of fees that are in addition to their quoted swipe fees.
What I mean by this which
will be explained more is that there are many types of credit cardholders and
types of credit card transactions. Prior
to being set up with the merchant program, it is very important to profile the
merchant as to how they are accepting transactions (face to face, keyed, etc.)
and what type of cardholders are they (consumer, corporate, debit, etc.).
If the merchant is not
profiled correctly, then that merchant will be paying additional high enhanced
charges for accepting these other cards and cardholder types. This will be more explained as you read this
book.
I hope that this helps
explain what happens when a credit card is swiped and put through the
network. I try not to go into much
detail about this for it is not too important but do want you to understand the
difference between Acquirers and Issuers and most importantly that you, the
merchant,
Must be set up correctly and not pay
additional high
Unneeded Fees