What is credit card processing?

Credit card processing can refer to the electronic system to complete credit card transactions. Or it can refer to specific tools used by merchants to review the credit card payments that have been accepted, are pending, or have been reversed.

In most cases, merchants are charged fees when credit cards are processed which is why some business owners may attempt to pass on these expenses to their customers or set minimum payments that they will accept. This is usually a breach of the contract set forth by credit card processing companies.

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Credit cards can be processed with an electronic processing machine that reads the magnetic strip and transmits the data via the Internet. Other merchants rely on manual credit card readers or simply print all of the pertinent information from credit cards on a form. This is why security codes and other provisions are used to ensure that only valid online credit card payments are accepted and processed.

How are credit card charges processed?

When a consumer wants to make a payment with a credit card, the merchant is responsible for collecting any and all information needed to pay the payment through. Some credit card processors require merchants to visually inspect valid photo identification obtained from customers paying with credit cards. When payments are made online, consumers will typically be prompted to type in the security code printed on the back of their cards.

In order for credit card payments to be processed, the merchant must have an agreement in place directly with a credit card company or a credit card processing service. Sometimes credit card processors will charge merchants lower fees if they are able to maintain certain volumes. This is why you find that some merchants will only accept certain credit cards and others will run the gamut. The FTC has rules on what types of fees merchants can charge consumers.

How long does it take for a credit card payment to be processed?

Although credit card companies will immediately process a payment, it can several days or even weeks for the money to be taken from the consumer’s account and sent to the merchant. This can happen as a result of delays on the part of the merchant, the credit card processor or even because an electronic processing system has glitches. If a consumer makes a credit card payment at the end of a billing cycle, this can also delay a credit card payment from being processed in a timely fashion.

Some merchants will place a hold on their customers’ credit cards before putting a payment through to ensure that there is enough money to pay the charges. This frequently happens with merchants that will have difficult time collecting their money should the credit card have limited funds, such as with gas stations and convenient stores. After the hold has cleared, credit card payments typically are processed within two to three days. Credit card payments made on the weekend may also be delayed.

Why are some credit card payments reversed?

Credit card payments can be reversed if the charges were not authorized by the cardholder, if the merchant refunded the charges or if a consumer initiates a chargeback. Credit card payment reversals may also occur if a credit card processor deems the merchant to be in breach of contract. This can happen if too many credit cardholders complain of unauthorized charges, inflated bills, or being unhappy with the products or services rendered.

Cornell University Law School defines credit card fraud as any charge made without the consent of the cardholder. Credit card fraud charges can also be filed if a cardholder has lied or made false statements in an attempt to have his or her outstanding payments reversed.

How do merchants pay credit card processing fees?

Merchants can agree to pay credit card processors a set fee schedule based on the number of credit card payments processed, or they can be billed monthly in addition to being charged a reduced rate for each credit card payment. Most of the time, merchants will setup a credit card processing account in which fees are deducted automatically from every payment received.

Merchants can also pay credit card processors directly if they have not been able to collect enough credit card payments to offset the fees. If the account goes delinquent, the credit card processor may close the account because it views the business as being no longer viable. If this happens, the merchant may find it difficult to locate a new credit card processing service.

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