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Merchant Resources

Understanding how bank card processing works can be very confusing. From the terminology used, to how the process even works – grasping all of it can be a challenge for newcomers.

While the process can be complex, it is our hope that the information provided here will give you a sense of how it all comes together and works for you.

The Parties Involved in Bank Card Processing

The parties involved are:

  • The Customer
  • The Merchant
  • The Acquiring Bank – The Merchant’s Bank
    • These institutions act as messengers between merchants and credit card associations. They pass batch information and authorization requests along so that merchants can complete transactions in their businesses.
  • The Issuing Bank – Customer’s Bank That Issued the Bank Card
    • These are financial institutions that issue credit cards, like Chase, Citi, and Wells Fargo. Some card associations take on the role of a bank as well, developing and issuing their own cards. Examples of this include Discover and American Express.
      • Credit Card Associations: these are the companies that create credit cards, such as Visa, MasterCard, and American Express. These are the companies that set the rules.
      • Merchant Account Providers: these are companies that manage credit card processing (e.g. sales, support, etc.), usually through the help of an Acquirer. They could be financial institutions, independent sales organizations, or double-duty acquirers, depending on the situation.
      • Payment Gateways: These are special portals that route transactions to an Acquirer, usually in the form of an online shopping cart.

How Bank Card Processing Works

  1. The process begins with a customer purchasing an item and/or service from the Merchant with a bank card.
  2. The Merchant submits the request to the Acquiring Bank (the Merchant’s Bank).
  3. The Acquiring Bank passes that request through the Credit Card Network and then to the Issuing Bank (the Customer’s Bank) to authorize the transaction.
  4. An Authorization Code from the Issuing Bank is then sent back through the Credit Card Network to the Acquiring Bank who then authorizes the transaction and sends the Authorization Code to the merchant. And the transaction is complete.

Types of Fees Involved in Bank Card Processing

Flat Fees

  • Payment Gateway Fees: these are similar to terminal fees, but they are applied to e-commerce businesses instead.
  • PCI Fees: these are fees paid to the Payment Card Industry, either for noncompliance or compliance.
  • Annual Fees: these are fees charged every year to cover the basic use of a provider’s services.
  • Early Termination Fees: this fee is charged if you cancel your contract early.
  • Monthly Fees: these are fees that are charged each month, usually for covering call center costs.
  • Statement Fees: these are fees charged to cover printing and mailing costs for credit card statements. Some merchants bypass these costs by using electronic bill statements.

Incidental Fees

  • Retrieval Request Fee: every time a customer initiates a dispute on a charge from your business, it sets into motion the chargeback protocol. This retrieval request is the first step. The fee covers any expense related to the retrieval request.
  • Chargeback Fee: after a retrieval request, the actual chargeback may occur depending on the circumstances. If it does, expect another fee on top of losing the money from the sale.
  • Batch Fee: every time you submit a batch of transactions, a batch fee (or batch header) is charged. It happens once or twice a day, and is only as much as a dime or two.
  • NSF Fee: if you don’t have enough funds in your bank account to cover your merchant account expenses, you will be assessed a NSF (non-sufficient funds) fee.

Additional Merchant Bank Card Information

Visa Interchange Reimbursement Rates

Visa Card Acceptance Guidelines for Merchants

Visa Merchant Security Suggestions

MasterCard Interchange Reimbursement Rates

MasterCard Merchant Security Suggestions

At Interstate Merchant Services, we help you find the program that is the best fit for your business.