What's the Big Deal About Credit Card Processing and Chargebacks?
Credit Card Processing: When processing credit cards online, it is essential that you have the best available processor with the lowest rate of fees and charges. There are a number of factors that need to be considered when choosing a credit card processor such as processor's experience, the type of transactions processed, pricing and available services. There is the interchange fee, also known as the interchange rate, which is used by credit card processing companies to calculate the cost of a transaction. This fee is included in all monthly or annual billing and is calculated based on the average percentage of credit card transactions processed per month.
Merchant Discount Rate: A merchant discount rate is charged by banks for processing credit card transactions. It is generally between 2% to 3% (sometimes more) for most online merchants to as much as 5%, which is often paid by getting processors with higher interchange rates. Merchants can use this fee to offset any possible losses from customers not making purchases. The amount of a business owner's liability for this fee is determined by the bank. It can also be reduced by meeting certain requirements. For example, if the merchant is located in an area served by a bank with a high percentage of local clients, he is given a discount by the bank.
FICO: The Fair Isaac Corporation calculates a FICO score that is then used for credit card processing fee purposes. The FICO score is a mathematical formula based on the monetary payments made and the types of transactions performed by customers. In order for a business to qualify for a high FICO score, it should have very few customer transactions and should have very low delinquencies. Banks that process credit card payments using FICO are called "pre-branded" banks.
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EMV: An industry acronym that stands for "electronic money transfer." This includes all of the various credit card processing methods, such as swiping, direct deposit, and electronic checks. While EMV is growing in popularity because of the lower fees, one of the major reasons it is starting to fade away is that chip cards are now more affordable than they were in the past and are accepted at more locations than debit or credit cards.
The U.S. Federal Reserve Bank has been the leading voice in urging banks not to implement these fees, citing the potential for consumer spending loss, damage to the economy, and possible default on payments by merchants. These arguments have been largely ignored by financial institutions, despite the threat of default. Many banks have already decided to drop the idea of EMV.
RCCI: The Reserve Currency Issuing Bank, also known as the RCI, is the bank that issues the debit Visa card. Merchants will have to pass through the authorization process with the RCI before the cardholder can purchase goods from the merchant's Point-of-Sale terminal. Once authorization is given, the merchant's software will digitally sign the sale with a security lock, providing both parties with a physical key that will unlock the stored authorization. When the cardholder swipes the customer's card at the point of sale terminal, authorization is granted and funds are debited from the customer's account.
IAAQ: The International Association of Assessing Cards, or the IAAQ, would like to see an end to all credit card processing and all interchange fees. IAAQ believes that all processing charges should be eliminated, along with all interchange fees. However, the IAAQ believes that increased online processing costs should be allowable as long as they do not exceed the cost of a traditional check out. It is currently estimated that most e-commerce websites will not be profitable enough to pay for the high cost of credit card processing and as a result will implement no online processing charges at all. This policy may cause some IAAQ members to go completely out of business if their costs cannot cover the entire profit generated by their sites.
Charge Back: If a customer has an unauthorized transaction, the issuing bank or the merchant's processor may charge back the client for the amount of the transaction that was unauthorized. This charge back policy is currently only implemented in selected countries, and is a voluntary charge back policy. In other countries, the merchant or the issuing bank may contact the customer directly, or have a written transaction agreement with the customer.
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