A Business’ Guide to Credit Card Processing

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Ahh, credit and debit cards. They’re a business owner’s best friend and worst enemy. Customers expect to be able to use them in your store, and so they should. But the systems for processing them can be downright confusing and, sometimes, pretty expensive.

Never fear, Smartpay is here. And we’re about to give you a helpful rundown on how credit card processing works. Got these questions? We have the answers: 

What is Credit Card Processing?

Credit card processing is the method of transferring money from a customer to your business, via a credit card. Once a customer scans or taps their card, banks and merchant service providers come into play, as do trusty card schemes like Visa and Mastercard.

But Why Should I Care About Credit Card Processing?

We get it. When you’re running a business, you already have enough to worry about. And it’s easy to lose track of credit card processing costs. But before you know it, you’ll be whacked with a bunch of hidden fees that can take a toll on your bottom line. So, learning the basics of credit card processing means no more hidden surprises and a better handle on your finances.

Who’s Involved in Credit Card Payment Processing?

  • The cardholder is the customer who is using a credit card in a transaction.
  • Issuing banks are the banks or financial services which distribute credit cards.
  • Merchants are businesses (that’s you!) that accept card payments in exchange for goods or services.
  • Acquirers are banks or other financial institutions that facilitate credit card transactions and process payments into the business’ account. They interact with business owners, acquirers and card schemes to facilitate the transaction.
  • Card schemes like Visa and Mastercard set guidelines for the use of their cards and act as a go-between for the issuing and acquiring bank.
  • A business’ payment terminal and point-of-sale system allows the cardholder and merchant to interact and track the process. That’s where we come in.

How Does Credit Card Processing Work?

  1. Your customer wants to buy something, and they hand over their card to pay. This might happen in person at a point-of-sale terminal or it could be online in an e-commerce gateway. 
  2. You (and your payment terminal) send a request to the payment processor to authorise the transaction and get the okay. 
  3. The payment processor, card scheme and issuing bank communicate with each other to make sure everything is gravy.  
  4. The issuing bank approves or declines the transaction. If it’s a no go, it could be because the customer has insufficient funds or their account has been closed.
  5. The final outcome of the transaction is communicated to the card scheme, acquirer and merchant. Then voila! It’s displayed on your payment terminal. 

As detailed as that sounds, credit card processing takes place in a matter of seconds. And from there, the processing of large groups of payments into the business’s merchant account will subsequently occur, usually within a few days.

Wait. Is Credit Card Processing Secure?

Not to worry. With the proper safeguards in place, credit card processing is secure. But because credit card transactions are always a ripe target for fraud, you need to take some necessary steps to protect your business and your customers.

Most importantly, your business’ payment processing should comply with the Payment Card Industry Data Security Standard (PCI DSS), a series of regulations developed by large card schemes, including Mastercard and Visa. These regulations are especially vital for businesses that store customer card data in any way. You can find PCI DSS merchant resources here.

The good news is that for most business owners, your EFTPOS system will do most of the heavy lifting in the security department. For example, the EFTPOS system features a stack of features, including the tokenisation of payment data. This ensures transaction details aren’t shared with third parties.

Still worried about your business’ payment security? Accept mobile payments like Apple Pay and Google Pay. These extra-safe payment processes give you even more security features like biometrics. Also, having up-to-date terminal software means your system is staying on top of the latest threats.  

You can read more about the reliability of EFTPOS and the security features we pack into Smartpay terminals here.

Debit Card vs Credit Card Processing

Debit cards work a little differently from credit cards. So, while a credit card lets customers access funds via a continuous line of credit, a debit card means they’re using their own money they already have in the bank.

Because debit cards present little risk, banks pre-authorise their use. And your business is the big winner here, because it means a much simpler and faster payment process, with typically lower fees.

What Are Some Common Credit Card Processing Fees and Costs?

Let’s get down to brass tacks. If you own a business, credit card processing costs are going to pile up fast. These fees fall into three categories:

  • Interchange fees: Fees paid to the issuing bank on every transaction.
  • Scheme fees: General service fees are charged by card schemes (such as Visa and Mastercard), typically on every transaction.
  • Acquirer margin: Fees levied by the bank or payment facilitator to cover such costs as providing card acceptance services, customer support and settlements.

But wait, there’s more. Different types of cards carry different kinds of fees. So, certain premium reward cards require higher interchange fees to cover the costs of bonuses (like rewards points and flights). Meanwhile, American Express and Diners Club cards all have boosted scheme fees.

The Reserve Bank of Australia has found that on average, American Express cards attract total merchant fees equal to 1.7% of the transaction value. Mastercard and Visa cards attract merchant fees equal to 0.9% of the transaction, on average.

For comparison, Mastercard and Visa debit card transactions carry average merchant fees of just 0.5%.

So, Who Pays the Credit Card Processing Fee?

As the business owner, credit card processing fees are often yours to pay. And whether they come from card services or payment facilitators, you’ll have to wear them.

Can I Pass on These Fees to My Customers?

Thankfully, you’re able to pass credit card fees onto your customers. And it’s done with something called a ‘surcharge’. These small, additional fees can be levied on credit or debit card payments.

But before you go passing on the fees, you need to get up to speed on the latest rules regarding card surcharges on the Australian Competition and Consumer Commission website. Some of the most important regulations for Visa, Mastercard and EFTPOS payments include:

  • Surcharges can be up to the costs incurred by the business to accept that payment type.
  • Surcharges can only include costs incurred for using a particular payment type. For example, costs that only apply to credit card transactions cannot be included in a debit card surcharge.
  • If there is no way for customers to pay without paying a surcharge, the surcharge cost must be included in the product’s displayed price.

Use Smartpay Zero Cost™ EFTPOS and Save

Want a fuss-free way to wipe out merchant service fees? Smartpay’s Zero Cost™ EFTPOS is the way to go. Smartpay Zero Cost™ EFTPOS lets you pass your credit card processing costs onto your customer with ease. You’ll get the surcharge calculated automatically, and can even customise when to apply them and to which cards. Magnifique! 

Find out more about Smartpay’s Zero Cost™ EFTPOS here. Or, if you’d rather avoid surcharging, check out Smartpay’s Simple Flat Rate plan.

How Can I Accept Credit Card Payments For My Small Business?

The good news: there are loads of options when it comes to accepting credit cards for your business. The even better news: Smartpay offers a simpler, mobile and intuitive credit card reader.

Our mobile credit card reader accepts all major credit card types (including Apple Pay and Google Pay). Plus, it’s easy to use with a speedy setup and a bevy of security features for your peace of mind.

What’s more, our Smartpay Zero Cost™ EFTPOS and Simple Flat Rate plans take the guesswork out of credit card processing fees that small businesses usually struggle with.

Find out if Smartpay’s credit card reader is right for your business today.

Keen to know more about surcharging?

Our team of Payment Specialists can help you discover what’s best for your business. To discuss how surcharging works and our flat rate plans, contact the team at Smartpay.

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or Contact Sales on 1800 574 999

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