Business credit card processing is a
multi-step business process that requires cooperation between the business and
the credit card processing firm. Credit cards are a form of
payment that allows the user to delay payment, based on the amount of credit
extended by the financial institution or retail store. Businesses that allow
customers to pay by credit card can increase their customer base and expand their
services to the Internet.
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When credit cards were first
introduced, they were an extension of store credit. The credit card was first
introduced in the United States in the 1920s to sell gasoline, with the card
limited to a specific gas company. Large retail companies initially offered
their own credit cards to customers to increase their market
share
and provide a benefit to their customers. In 1950, the Diners Club® card was invented,
allowing customers to use a general purpose card that would be accepted at
multiple suppliers.
It is worth noting that credit card
acceptance is quite widespread in the United States, England, and Canada, but
has a much lower acceptance rate in other countries. This is a combination of
culture and banking practices. For example, Japan remains a cash driven
society, with a significantly lower rate of credit card usage than other
comparable nations. The level of acceptance of credit cards as a payment method
has a definite economic impact, as consumers are limited to spending the cash
on hand and not making purchases based on future income expectations.
In order to accept a credit card, the merchant must first subscribe to a business credit card processing firm or network. There are a range of networks
available, with Visa® and Mastercard® being the most widely recognized. The
merchant is issued a specific merchant identification number and is provided
with a business credit card processing account and the equipment required to
swipe the credit cards magnetic strip as part of the payment process. The
merchant typically pays for this service based on usage, with service fees
based on a percentage of sales processed via the credit card network.
At the point of sale, the cashier enters the sales information into the cash register, arriving
at the total cost of the sale. The customer provides his or her credit card as
the form of payment. The cashier swipes the card, and the card number, total
amount, and merchant identification number are submitted to the business credit
card processing firm. The service submits the information to the credit card holding company, which then checks the available balance on the credit card and
either approves or denies the transaction. If the transaction is approved, an
authorization number is sent back electronically to the merchant. The customer
signs the receipt and the sale is finished.
In order to receive the actual cash for
these transactions, the merchant is required to submit a summary of the day’s
transactions in a batch to the credit card processing firm. The credit card
processing firm then provides a credit in the merchant's bank account for the
total amount of sales, less the processing fees. There is usually a two- to
three-day delay between the processing of the transaction and the receipt of
the credit in the company’s bank account.