Welcome to the JAZ Info Series! Our goal with these blogs is to educate you on the ins-and-outs of the payment processing world. It can be a confusing industry at times, but we want you to gain the necessary knowledge for you to optimize your processing and help your business save. Whether that means financial savings or customized systems, our mission is to find the perfect processing fit for your business’ needs.
Now in order for us to find what solution best meets your processing needs, we need to ensure you have a foundational understanding of the industry. There’s some common misconceptions that misguide merchants and potentially lead them down disadvantageous paths. Throughout this series, we’ll break these down and explain the full scope of payment processing.
The Process
Let’s start with how your business is actually able to accept credit card payments. There are 5 parties needed to facilitate this:
- The Cardholder (Your customers who pay with Credit)
- The Merchant (Your business who accepts credit cards)
- The Acquiring Bank
- The Issuing Bank (The bank issuing the credit cards to your customers)
- The Card Associations (VISA and Mastercard)
A customer will go into your store and purchase goods with their credit card. Most often, they will tap or insert their card into a terminal. This terminal then transmits your customer’s card information and the transaction details to your acquiring bank. Your acquiring bank gets that transaction information and routes it through the appropriate card network (VISA or MC) to the customer’s issuing bank. The issuing bank receives the information through the card networks and responds by approving or declining the transaction after checking that it is in fact valid. The card network again carries that approval or decline message back to the acquiring bank where it is then forwarded over to your terminal. That customer’s payment is then stored and sent in a batch file (usually at the end of the day) amongst other approved transactions to your acquiring bank who subsequently deposits the funds from those sales into the your business’ bank account.
It’s important to note the acquiring bank’s role in this process. They provide the equipment necessary for merchants to process credit card transactions. The acquiring bank is a registered member of the card associations (VISA & MC) who creates and monitors merchant accounts which allow businesses to accept credit and debit. They often enlist the help of third-party independent sales organizations (ISO) to monitor and provide merchant accounts for businesses. These banks must be involved for businesses to take credit and debit transactions.
The Major Misconception: Business owners only deal with VISA and Mastercard
While VISA and Mastercard are the big names when it comes to credit cards, they are ultimately just a network. They don’t issue credit cards or create merchant accounts. They act as the bridge that connects the acquiring bank and issuing bank when their respective brand association cards are used. They provide the foundation for the communication/data transfer needed for these transactions to be processed safely.
You as a merchant actually don’t directly deal with these card associations. The issuing bank actually pays the acquiring bank for transactions done by their cardholders. The cardholders are then obligated to repay the issuing bank. The card associations (VISA and MC) are primarily responsible for governing the members of their associations by setting specific fees (more on this in a later piece) and of course providing the network for transmitting data. VISA uses their VisaNet network and Mastercard uses their Banknet network to transfer data between the two bank parties.
JAZ aims to make payments a simple and transparent process. Not only do we want to help Canadian businesses save, but we want to educate our merchants so they can make the best decisions for their business. Stay tuned for our next post that will break down industry pricing and the different options you have available. If you have any questions about your processing, you can call us anytime at 1-877-737-9749.