Payment Processing – Getting Your Money’s Worth (Part 2)
The payment processing industry is incredibly simple on the surface, yet when you dig deeper it quickly becomes pretty complex. In this segment we’ll try to summarize the key elements that you’ll need to know so you can make sure you’re getting a fair deal with your payment processing program. If you’d like to become an expert on this topic, however, we recommend that you consider one of the more academic resources available on the Web – mostly written by payment industry insiders and/or the processors themselves.
Basically, the payment processing system consists of:
- The consumers who make purchases
- The cards* they use to make the purchases
- The retailer (you)
- The banks that loan the consumers the money and pay you when the sale is processed
- The owners of the brand names and organizations for the cards (i.e., Visa, Mastercard, American Express, JCB, Discover, etc., these are known as the “card associations”)
(* Please note that there are differences between how each card specifically works and we’re generalizing the process for this article.)
In reality, there are two kinds of banks involved: the “issuing bank” (they issue the cards and interact with the consumer), and your bank (known as the “merchant bank” or the “acquiring bank”).
Further, the merchant bank almost always has some “middle men” to help them with managing the merchants and with the process of selling the merchant on their value proposition. These agents are variously known as:
- Independent Sales Organization (ISOs)
- Merchant Serves Organizations (MSOs)
- Merchant Services Providers (MSPs)
- Member Service Providers (MSPs)
However, to you they are probably just known as the sales people who “signed you up”. They provided you with your payment terminal and the other things you needed to take credit cards, and they service your account (answer questions, resolve disputes, etc.)
Finally, if you have an integrated payment solution (in other words, your POS terminals and software “automatically” accept credit cards and handle all of the processing), then you will most likely have a component in the process called a “payment gateway”. The payment gateway allows your POS system (like Retail Pro®) to communicate seamlessly with the merchant bank (or to their processing agent, the “processor”).
The reason it’s important to be aware of all of these links in the payment processing chain is that each link has some work to do, some risk to absorb, and some costs for the services it provides. And, as we discussed last time, it’s reasonable for you to pay for the value each of these links provide. However, we also believe that you should be paying a fair amount that is consistent with the value you’re being provided.
In the simplest terms, the sources for your costs for payment processing can be categorized into:
- Interchange. This represents what the issuing banks charge (as determined by the card associations) for all that they provide (i.e., dealing with the consumer: taking on the credit risk, managing their payments, providing customer service, etc.; dealing with the merchant banks; dealing with the regulatory organizations; marketing/branding; and any other services they provide). Clearly, this is the lion’s share of the process and ought to represent the bulk of the cost.
- Communication and processing. This is the cost associated with maintaining the networks and processing infrastructure necessary to ensure that all the transactions are reliable, timely and accurate.
- Merchant management. This is the cost of maintaining a relationship with you, the retailer, and servicing your account as well as taking on the risk of you staying in business and meeting your obligations.
In the next segment, we’ll discuss in more practical terms exactly what you get charged for on your monthly statement and why.
For more information, please see: http://www.retailpro.com/RequestMoreInformation.php
