Sage ERP I White Paper

Transcription

1 I White Paper Credit Card Payment Processing: Making Sense of the Credit Card Industry How Integrated credit card processing with saves time, money and effort

2 Table of Contents Introduction...3 Why Credit Cards?...3 Credit Card Transaction Process...3 Fees...5 Security...5 An Integrated Payment Solution...5 Sage Integrated Payment Solutions...6 Credit Card Payments Processing: Putting The Pieces Together 2

3 Introduction Credit cards have become a widely adopted and diverse form of payment by consumers for everything from large dollar item purchases to recurring bills and organization memberships to charitable contributions. Despite their everyday use, there is often little understanding by an accepting merchant of how credit card transactions are processed and recorded as well as the fee structure associated with being able to accept them for payment. Due in large part to this increasing usage, credit card requirements are changing as new regulations come into effect and the needs of small and medium-sized businesses (SMBs) constantly evolve. Why Credit Cards? Credit cards have been wholly embraced by consumers with nearly 78% of all consumers today carrying at least one credit card. 1 According to a 2010 Federal Reserve Payments Study, credit card payments totaled $1.9 trillion in 2009 alone. Further, consumers are using credit cards to make payments in-person, over the phone, or online, and transactions can range in size from a fast food lunch purchase to mortgage payments and beyond. Additionally, these consumers may want to pay with credit cards to accumulate reward points so they can reap additional benefits from using their cards. All these factors add up to tell SMBs that if they do not accept credit cards, they will most certainly be missing out on potential sales. For SMBs, accepting credit card payments is largely a customer satisfaction issue. Businesses are accepting payment using the methods their best customers prefer and doing it where and when their customers want. At the same time, accepting credit card payments offers tangible benefits to SMBs. One of these benefits is that consumers who make a purchase with a credit card on average will spend 20-30% more than a consumer paying with cash 2 translating into higher revenues for the business. And credit card acceptance results in SMBs getting paid faster as well as reducing internal processing costs by as much as 15.9%. 3 Additionally, the growth in online purchases has benefitted tremendously from the widespread adoption of credit cards since cash or check payment is not feasible in this environment. As a result, many businesses with a physical presence that have spent years building their brand can leverage that investment by adding an online presence to grow their revenue. And new businesses have flourished where a virtualonly presence is a better fit for their business model. Credit Card Transaction Process Before you see the different elements that make up the transaction process, it s important to introduce the primary entities that have a significant role in credit card transactions. Obviously it begins with the customer (cardholder) and the merchant, but a significant role in the transaction process is performed by a merchant acquirer, who signs up SMBs to accept credit card payments and makes sure the merchant gets reimbursed for the payments accepted on behalf of the business. Acquirers typically also perform risk management, underwriting, and all customer service-related functions. There is also a processor, who provides authorization and settlement services for all credit card transactions for each of the card types accepted by an SMB. The merchant acquirer and processor are often separate companies but can be a single company that performs both roles. Associations such as Visa, MasterCard, and Discover are major players in the credit card network. These associations, sometimes referred to as card brands, are comprised of member banks and also publish standards for accepting credit cards and processing payments. They establish what is known as the 1 The Survey of Consumer Payment Choice, Federal Reserve Bank of Boston, January Visa Payment Card Acceptance Helps the Bottom Line of Quick Service Restaurant Partners, BusinessWire, November 12, Maximizing Cash Flow with E-Payments and Process Automation, Aberdeen Group, May 2010 Credit Card Payments Processing: Putting The Pieces Together 3

4 interchange fee and create the advertising and promotional programs that support their brands. (American Express and Diners Club are structured differently from Visa and MasterCard however, they carry out many similar functions.) Finally, the card issuer is the organization that offers credit cards to individuals, sets customer credit limits, and establishes customer billing procedures. Often merchant acquirers and/or card issuers are banks. And banks can establish partnerships with other companies that perform the actual functions of an acquirer or issuer. First take a look at how these organizations work together to perform the three elements of a complete credit card transaction when a customer makes a purchase using a credit card authorization, clearing, and settlement. Merchant This is you, if you are a business offering goods or services for sale, or if you are a non-profit organization selling memberships or accepting contributions. Merchant Acquirer Signs up Merchants for credit card processing, performs risk management. Sage Exchange - PCI Free Zone Processor Settles funds for Merchants, and collects fees for Associations, the Card Issuer. Association Organizations such as Visa, MasterCard, and Discovery comprised of member banks. They publish standards for accepting credit cards and processing payments, establish the Interchange Fee, and create the advertising and promotion programs that support their brands. Card Issuer Offers credit cards to individuals, sets customer credit limits, establishes customer billing procedures, and guarantees that whenever the card is used, the Merchant gets paid. CREDIT Card Holder A customer using a credit card to make a purchase, pay a bill, or make a contribution. To begin the transaction process a customer, or cardholder, provides his credit card information to the merchant. If the cardholder is making a purchase in person, this is done by swiping the credit card through a card reader. But this same function is accomplished when the card number, expiration date, and other information is presented to the merchant over the phone or by filling out a form on the merchant s website. Next, the credit card information is immediately transmitted to the merchant s processor, who forwards the information to the association s network, which then routes that information to the card issuer. At that point the card issuer decides whether to authorize or decline the transaction for the amount requested and forwards that result back through the network to the merchant. Typically at the end of each business day, the merchant gathers all of the approved credit card transactions and transmits the information in a file to his processor in an operation called batching out. The processor then sends the batch back to the card associations, who in turn send the individual transactions to the card issuer. The card issuer then issues a bank transfer in the amount of the transaction payment to the Credit Card Payments Processing: Putting The Pieces Together 4

5 processor, and the processor routes these funds to the merchant s bank account. The card issuer adds that charge to the customer s credit card statement which is included on the customer s monthly bill. Fees The primary fee for using the association network is called the interchange fee. This is typically comprised of a per-item transaction fee plus a percentage amount of the total transaction. This fee is established by the association and varies from transaction to transaction depending on factors such as whether the cardholder was physically present at the time of the transaction and what type of credit card was used (for example, corporate credit card, rewards credit card). The interchange fee is the primary component of the monies collected from the merchant by the merchant acquirer. The interchange fee is then paid to the card issuer and to the card association. Security One recent change in credit card processing is in the area of credit card data security and was led by the PCI (Payment Card Industry) Security Council, an independent body created by the major card payment brands such as VISA, MasterCard, and American Express. In July 2010, the Payment Application Data Security Standard (PA-DSS), a standard managed by the PCI Security Council, mandated that all applications, whether installed or web-based, comply with the standard or face stiff penalties. This standard is wide-ranging and affects any entity that collect, stores, transmits, or processes payment card data. This was necessary due to increasing fraudulent activity and card breaches that were occurring as the usage of cards as a form of payment skyrocketed. More information about the implications and approaches to PCI compliance can be found in Reduce Your PCI Liability with Integrated Payment Solutions and can be found at: Reduce-Your-PCI-Liability An Integrated Payment Solution With the increase in credit cards as a form of payment accepted by merchants, many SMBs are seeing a growth in their transaction volume and have started to look for ways to combine credit card payments with their accounting or ERP systems. These merchants have begun looking for an integrated solution that will reduce processing time, cut down on manual data entry errors, and save time and money. Having the ability to use credit cards for payment at the time an order is placed, at the time goods are shipped, or even days after the customer s invoice is created allows merchants the flexibility to meet the ever-changing demands of their customers. Additionally, being able to take a payment in their store or office, at a customer s location, over the phone, or online ensures that merchants are equipped to accept payments in whatever way is convenient for their customer and cost effective for their business. Couple the payment with a fully integrated accounting or ERP solution that automatically reconciles the payment back to that system, and now you have a best practices solution. Of course all of this must be accomplished in a secure and PCIcompliant platform so a merchant s customers never have to worry about a breach of their sensitive data. Sage Integrated Payment Solutions Sage has integrated payment solutions that help SMBs increase revenue, decrease costs, and maximize Credit Card Payments Processing: Putting The Pieces Together 5

6 the value of their back-office investments. Sage has completely integrated payment and accounting/erp software, so manual reconciliation of payment data can become a thing of the past. In addition, Sage Payment Solutions offers a complete line of credit card, check acceptance, mobile, and advanced funding products to help SMBs manage their billing and risk items. For more information on how Sage can save you time and money while growing your business, please visit: Credit Card Payments Processing: Putting The Pieces Together 6

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