Credit Card Processing: The Key to a Competitive Business Strategy

Keeping your business competitive in a marketplace that is becoming increasingly global is no easy trick. With so many businesses out there competing for their share of the pie – and nibbling on yours – it can be challenging to identify a surefire strategy to keep your business running strong without doing serious damage to your carefully planned business budget.


But there is one way to help grow your customer base and increase your profits that’s surprisingly affordable, and since you’re reading this article, it’s a good bet you know what that is: credit card processing.


With credit card use becoming more and more popular among today’s shoppers, it’s surprising that not every company out there accepts credit cards. In fact, as more Internet and credit savvy youth enter the consumer population, it’s easy to see why businesses who want to remain competitive are accepting credit cards to draw this next generation of shoppers into their flock of loyal customers. For those businesses that refuse to advance with the tide, the future can be bleak.


Credit card processing is simple – in fact, so simple, that’s another reason it can be difficult to understand why all businesses don’t do it. Processing credit cards begins with opening a merchant account, a special type of account that is designed to facilitate and oversee credit card transactions for businesses of all types and sizes.


Merchant accounts rely on software to collect and then transmit credit card data to the card issuer. This can be accomplished via an online website, through a retail establishment’s point-of-sale, or swipe, terminal, through a mobile account using a cell phone, or through the business’ computer, as in telephone and mail order sales. The underlying processes are similar, with a few significant differences:


Retail Accounts


In this scenario, a customer swipes his or her credit card through a swipe terminal, which is connected to the Internet via a dedicated telephone line. The card information is collected by the special slot in the terminal, then transmitted via the phone line to the card issuer.


The card issuer, in turn, checks to see that the card is valid – that it has not been reported lost or stolen, and that it has not expired – and checks to see if there are sufficient funds available in the account to cover the costs of the transaction.


Then it can do one of two things: decline the transaction, if the card is not valid or if there are insufficient funds, or approve the transaction. When transactions are approved, a unique ID number is assigned to the transaction, and the funds are earmarked – or reserved – for the sale.


The card issuer transmits a code indicating approval to the business, and the receipt is printed. Meanwhile, the funds from the credit card issuer are transferred to the merchant account, which will process those funds, deducting any transaction or daily fees, and then transfer the remaining money to the business bank account at the end of the business day.


Because retail accounts require a face-to-face transaction, they are associated with the lowest level of risk for fraud, and hence have the lowest fees of all the merchant account types.


Internet Accounts


These accounts use an online shopping cart system to collect customer credit card data. That information is transmitted to the card issuer using a special, secure program called a gateway provider, which helps speed online transactions and provides additional security against fraud. The gateway provider can also perform address verification, allowing an additional level of security for online credit card transactions.


Some merchant account providers offer their own gateway service, while others will require you to find a compatible gateway provider on your own. These types of accounts are called “real-time” accounts, because the transaction and transfer of funds occurs immediately, or in real time.


Delayed processing accounts can also be used for Internet retailers. In these accounts, credit card information is collected by the shopping cart program and stored until later in the day, when a business representative gathers that data and then enters it into the business computer by hand.


In this case, the business computer acts as a virtual terminal. If you have large volumes of sales and a small sales staff, delayed processing is probably not a good option. The primary advantage of delayed processing is their lower cost structure.


MOTO Accounts


Short for mail order and telephone order, these accounts usually rely on delayed processing systems, but larger companies may prefer to use the automated real-time system.




This newest type of merchant account works similarly to the Internet account, but allows credit card orders to be processed via a cell phone or laptop using a WiFi connection. Many businesses select more than one type of account to expand the way they can do business.


With so many options to choose from, coupled with lower overall fees, there’s no reason not to have a merchant account. Open yours today.