How Credit Card Processing Works

1. How Credit Card Processing Works Here’s a brief guide on how credit card processing companies work and the impact of credit card acceptance on small businesses.

2. Table of Contents .01 – How Credit Card Payments Process .03 – Choosing a Credit Card Processing Company .04 – Security Features .06 – The PCI Security Standards Council .07 – Benefits of Credit Card Acceptance .08 – Summary Page .00 How Credit Card Processing Works

4. How Credit Card Payments Process The merchant submits the information about a credit card transaction to the credit card gateway for the customer. The payment gateway process the transaction information by sending it to the merchant’s bank processor using a secure connection. The merchant’s bank then submits the transaction to the credit card network, which routes the transaction to the customer’s issuing bank. The issuing back will either accept or decline the transaction, depending on the availability of funds. Then, they pass the information back to the credit card network and to the merchant bank’s processor. Transaction results are sent to the gateway and the funds are transferred via the credit card network to the merchant’s bank account in what is known as the settlement process. Page .02 How Credit Card Processing Works © 2013 Business.com Media, Inc. All Right Reserved.

5. Choosing a Credit Card Processing Company The merchant agreement is the most important part in choosing a merchant service provider. You need to ensure that the terms of this agreement are consistent with your individual business’s needs. • The merchant service provider agreement should be a good fit for your business size, transactions and industry. • If American Express and Discover cards are used for more than 25% of your business, make sure you can process these cards directly, just as you would with Visa or MasterCard. • If you accept payments from corporate cards, make sure your system supports this and the terms of the support are laid out in your merchant agreement. Accepting credit cards can increase revenue by as much as 23%. - Maverick BankCard Page .03 How Credit Card Processing Works © 2013 Business.com Media, Inc. All Right Reserved.

7. Security Features Having the right security is essential. Make sure your processing package incorporates the following: Address Verification Services (AVS): The AVS check requires billing information, specifically the billing address, be correctly entered before a transaction is processed. Card Verification Value (CVV): The Card Verification Value (CVV) check is sometimes also referred to as the CVV2 card type, the CID, or CVC2. When the CVV2 check is required, there are two communications in the authorization process. 1. Confirm the dollar amount to be authorized, ensuring the funds are actually available. 2. Confirm that the CVV2 code matches bank records. Page .05 How Credit Card Processing Works © 2013 Business.com Media, Inc. All Right Reserved.

8. The PCI Security Standards Council The Payment Card Industry Security Standards Council (PCI SSC) was created by major credit card companies in an effort to better protect credit card holder data. • The PCI SSC operates a number of programs to train, test and certify organizations and individuals to assess and validate adherence to PCI Security Standards. • When a company is PCI compliant, it easier to gain a customer’s trust. [Visit the PCI SSC website for more on compliance]. • With compliance, a company is better protected against financial liabilities including fees, fines and even potential lawsuits. Page .06 How Credit Card Processing Works © 2013 Business.com Media, Inc. All Right Reserved.

9. Benefits of Credit Card Acceptance Beyond an increase in sales and eventual profits, here are three ways your business can benefit from credit card acceptance. Improved Customer Satisfaction. Customers like the speed, flexibility and convenience that come from paying with their credit card over cash. Appeal to and Entice Impulse Buyers. The convenience of using credit cards tends to increase the likelihood of "impulse purchases.” Faster Payment. Electronic payments will enable faster payment cycles, which can lead to improved cash flow and decreased billing overhead. 83% of businesses that accept credit cards make more sales than those that don’t. - Intuit Page .07 How Credit Card Processing Works © 2013 Business.com Media, Inc. All Right Reserved.

10. Summary As you get started with accepting credit cards for your own business, make sure you understand: » how credit card payments process » how to choose a payment processing company » security features your business needs » steps that need to be taken to ensure PCI compliance Visit Business.com for more information about credit card processing. Simply put, our mission is to help people grow their businesses. This is why over 20 million buyers from small-to-medium enterprises turn to Business.com every year to discover, compare, and purchase the products and services they need to run and grow their businesses. It's also why over 10,000 advertisers use Business.com to reach these valuable buyers, generating well over $1 billion in incremental annual revenues. Before you even start processing sales, your merchant services provider will charge you a number of fees. First, there's the account setup charge to open a merchant account, and there's usually a monthly account charge to maintain the account. You often have to buy or lease equipment from the credit card processor, and there are fees for doing so. However, accepting credit cards doesn’t have to break the bank for your business. According to a 2000 MIT study, credit card users spend up to 100% more than their cash using counterparts1. Small businesses today may find that there are options about credit card acceptance are decreasing. Customers want to be able to pay with the convenience offered by credit cards, but it’s important for merchants to understand what risks come with the rewards of credit card acceptance. Understand how processing fees are calculated and focus on finding the best rate for your business. Page .08 How Credit Card Processing Works © 2013 Business.com Media, Inc. All Right Reserved. 1. “Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay,” Drazen Prelec and Duncan Simester, 2000.