Getting down to basics

What’s your payment processing IQ?

I’ve stated this before, but I’ll state it again: the most successful sales reps are those who really understand how payment processing works. They are experts.

This is the first of a two-part series prepared to help educate new agents, and put them on a path to becoming payments experts. If you are an experienced rep, consider it a refresher.

At its core, payment processing is about moving money – from a customer’s (buyer’s) financial account to the merchant’s (seller’s) account. This exchange of money can be accomplished using a credit card, debit card, the ACH, one of the emerging real-time payment networks, eventually even crypto wallets.

In the simplest of terms, this movement of money begins when the customer’s method of payment, for example a credit card, is presented to the merchant who uses a technology solution to securely collect pertinent information from the card (card number, expiration date, CVV). It might be a POS device with a swiper that captures the information electronically, a web-based virtual terminal where the merchant enters card information given by the cardholder, or an online shopping cart where the cardholder enters the card information.

Next, that information, along with the transaction amount, gets sent over one of the card networks (Visa, Mastercard, Discover, American Express) to the customer’s bank (the bank that issued the credit card), which checks to see if the cardholder has enough credit to cover the transaction. If the response is yes, the issuing bank immediately puts a hold on that money and the network sends an authorization code back to the merchant through the acquirer (sometimes referred to as the processor).

The transaction gets batched together with other transactions authorized throughout the day, along with the requisite authorization codes. Then, at a predetermined time (usually end of day), that batch of authorized transactions gets sent back through the networks for settlement by the merchant. (This can be referred to as “batching out.”)

Settlement occurs between the card-issuing bank and the merchant acquirer/processor. To achieve this, each has a backend to the networks. As part of the settlement process, the card-issuing bank keeps a percentage of each transaction. This percentage is known as interchange, which can vary depending on the type of card, category of merchant and POS technology used. For example, a rewards card used at a EMV chip-reading terminal will have lower interchange than when used for an online purchase. The reason: the odds of the card being fraudulently used is higher in a card-not-present environment.

Interchange can run as low as 0.5% and 21-cents, in the case of regulated debit cards, to 3% or more, which happens with some business rewards cards and in card-not-present environments.

The card bands also take a piece of each transaction – dues and assessments for using their networks, which run a couple of cents plus 13 or 14 basis points per transaction.

Combined, interchange, dues and assessments average about 2.1%. That’s the average true cost for every processor.

Next week: interchange pricing and Schedule As.

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