Credit Card Processing

Credit Card Processing 101

Credit Card Processing is a significant expense for any business and understanding your rates and fees is not only a daunting challenge but downright frustrating.  You seemingly require a PhD in Quantum Physics and truly never really understand the rates being offered.  The industry is fraught with double speak and when discussing rates with a salesperson its typically over the phone.   You simply want an honest approach to a very complicated industry! 

Below is an outline of how the credit card processing industry functions:

Card Brands – The Card Brands are comprised of Visa, MasterCard, Discover & AMEX and are solely responsible for establishing Interchange Rates and Fees.  “Interchange” is the base pricing for which Card Processors utilize to pass along to their Merchants.

Please note Card Brands cannot issue Merchant Services directly to Merchants.  There must be an intermediary such as a Card Processor and or an Independent Sales Organization (ISO) which represents the Card Processor & Card Brands

Card Issuing Banks – Card Issuing Banks such as Capital One, Chase, Bank of America, Wells Fargo, etc issue Co-Branded cards (ie, Capital One MasterCard) to Consumers which in return are utilized to purchase goods and services from Merchants.

Interchange – Interchange Rates and Fees are established by the Card Brands for the many types of consumer credit cards accepted by Merchants.  There are hundreds of types of Interchange Rates such as Credit, Debit, Corporate, Rewards, Pin Debit, International Cards, Online and so on. Each card has a different rate & fee.

Card Processors – There are multiple Credit Card Processors in the United States including First Data, FIS, TSYS, Elavon, Paypal, Square, Paymentech, etc.  Card Processors are responsible for the networks which transmit all credit card transactions between a Merchant, Consumer and Card Issuing Bank.  

Card Processors are also responsible for collecting all Merchant Processing Fees and submitting to the Card Brands each month.    

Independent Sales Organization (ISO) – ISO’s are contracted with the Card Brands and a Card Processor to acquire Merchants on behalf of both entities. 

Merchants – Businesses that accept Visa, MasterCard, Discover & AMEX for payment of goods and services by Consumers are commonly referred to as “Merchants”.  Merchants execute a Merchant Processing Agreement (MPA) and agree to pay all card processing fees based on their pricing format set by the ISO / Card Processor.