Learn about common industry terms to help you accept credit card payments in QuickBooks Online.
When you accept credit and debit card payments, it makes it easier for you and your customer. We want to help you make the sale the first time. When you accept credit cards, you get a higher average sale then seen with cash.
There are fees, regulations, and requirements that come when you accept credit cards. Learn about the players, fees, and services to save you time, money, and a lot of headaches down the road.
Industry terms you need to know
The interchange fee is a percentage of a transaction. It helps cover authorization costs, suspicious activity, and credit losses.
Other than American Express, major cards charge an interchange fee. The fee depends on how the transaction is sent and the type of merchant account you have. It's usually a percentage of the total bill plus a flat cost per transaction. This fee covers the costs and time to get funds to your merchant bank and the billing info to the issuing bank.
Most of your costs will be transaction processing fees. Your rate per transaction is measured by your personal and business risk, percentage of card-absent sales, average dollar amount per sale, and total dollar amount of monthly sales. When you lower your transaction risk, you'll lower your charge rate.
To get the best rate, check out the qualifications around each type of sale.
The charge rate for each transaction depends on how you process it. It changes from in person, online, or by phone. Transactions done in person where you swipe the card will qualify you for the lowest rate.
- Qualified rate is the percentage the bank charges whenever you add a transaction with a physical card and you use your approved processing solution. This is usually the lowest rate you can get.
- Mid-qualified rate is the percentage the bank charges whenever you accepts and processes a card that doesn't qualify for the lowest rate. This may happen when you manually key a card into a terminal instead of swiping it.
- Non-qualified rate is the percentage the bank charges whenever you accept a card that doesn't qualify for either of the lower rates. This may happen when you don't swipe a card and manually key it in. It can also happen if you don't verify the address, info is missing, or if you don't settle the authorization within a certain time frame (usually 48 hours).
A rate increase, known as a downgrade, happens when your transactions don't meet the requirements for the lowest rate. To avoid downgrades:
- Make sure your transactions meet the qualification requirements to get the lowest rate. Train your staff to do the same.
- Train your staff on how to audit transactions totals for errors. Closeout daily credit card transactions at the end of each day.
Batching is when you settle your charges and send them to the bank daily. Make sure you get the best rate on all your daily transactions. "Batch out" within 24 hours. If you don't, you raise the risk of a dispute that can cause your transactions to downgrade. Dial-up connections can drop lines and result in duplicate charges.
The cardholder has up to 60 days from the statement date to dispute a charge. When the cardholder files a complaint with the bank, you'll receive a retrieval request. It can cost you $10 to $50. If you don't respond in a timely manner, the bank can charge you a timeliness fee. You can lose the transaction completely. When you issue a refund, you may lose the interchange fee you paid.
For transactions without the card holder or the physical card, you may have to verify the cardholder's address to qualify for the discount rate. All processors charge a flat fee per transaction for this verification. Your bank may list is separately or they may bundle it with your rate.
A card association like Visa, MasterCard, and Discover can issue a bank card. The card associations have several types of bank cards:
- Rewards (points or mileage)
- Purchasing (business supplies and travel expenses)
- International (foreign banks)
Each type may have different interchange fees in line with benefits and status set by the card association.
Who's who and what's what
A credit card transaction involves a number of participants from swipe to payment. All benefit from the transaction fees you pay. Check out all the people involvedin the credit card process from start to finish.
Merchant Service Provider
A merchant service provider acts as a median for all communication and relationships between the merchant and the card associations, processors, and merchant bank. Merchant service providers are set up your account on the front and back end to handle credit card transactions.
Act as the front-end connection to the card associations. Payment gateways transfer payment data from the merchant to the issuing bank or processor. These gateways support most point-of-sale systems, banks, processors, and merchant types.
Processors handle the transmission of payment that you need to authorize and settle credit card transactions. Processors charge you a fee for each transaction, which is usually bundled with your rate.
- Front-end processor - Deals with up-front card authorization, connectivity to card associations, and network authorization.
- Back-end processor - Receives and forwards settlement batches to the issuing banks on a schedule or time frame.
Extends a line of credit to the consumer. The issuing bank and acquiring bank share liability for non-payment by the merchant, according to the rules established by the card association brand.
The card association is a network of issuing and acquiring banks that process payment cards of a specific credit card brand.
Known as the acquirer or the acquiring bank, is the financial institution that provides you with a merchant account. It handles acceptance and payment of all credit card transactions at the quoted rate. For every transaction you make, a portion of your rate is paid to the issuing bank and card association on your behalf.
Check out this list to help protect you from fines and the loss of your merchant account.
- Verify the identity and expiration date on the card.
- Truncate the account numbers on your receipts. Each state has its own laws that govern what can and can't appear on the receipt.
- Take every measure to prevent duplicate transactions.
- Read your merchant agreement. It outlines all the fees and charges, and specific rules and regulations you need to know.
- Resolve customer issues as a priority.
- Take advantage of the variety of fraud screening products and services available to merchants.
- Ensure that old merchant accounts are properly closed and terminated.
- Use the right account for your business. If you try and process Internet transactions with your retail merchant account, it can lead to serious fines. You can even lose your merchant account.
- Don't run your personal credit card through your own merchant account.
- Don't use your personal credit card to provide cash to yourself or a friend.
- Don't place maximum limits on your transactions. A minimum limit can't exceed $10 and doesn't apply to transactions made with a debit card. You can't differentiate between card issuers or card brand.
- Don't charge a usage fee for credit card transactions to offset the cost of accepting credit cards.
- Don't split a transaction into smaller transactions. You may open yourself up to a chargeback.
- Don't request a credit card to guarantee a check.