- Posted By: tandem11
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70% of consumers use at least one credit card and most merchants accept them, but how many of us know what happens after we swipe or dip? Below is a simplified map of the credit card processing path that your money travels.
Step 1: A Customer Makes a Purchase
Imagine you’re at a store buying something. You swipe your magnetic strip card or dip your chip card. Now what?
Step 2: The payment processing terminal identifies the customer and alerts his or her bank.
A payment processing terminal, like the Clover POS system, identifies the customer who owns the credit card. That customer’s card-issuing bank is notified.
Step 3: The customer’s bank sends money to the merchant’s bank.
If your latte cost $4, your bank will send $4 to the merchant’s bank.
Step 4: The merchant’s bank sends a percentage back.
The merchant’s bank sends between 1% and 6% of the cost of the merchandise to the customer’s bank. That percentage depends on multiple factors, but it’s usually around 2%. That 2% is split with the credit card company. This is where the credit card company profits. This is also the associated cost that causes many small merchants to shy away from accepting credit cards.
Step 5: The credit card company makes money.
Not only does the credit card company receive a percentage of the sale, but they usually add on additional fees to a merchant’s bank statement. At Tandem, we suggest comparing your statement to the previous month’s and calculating the effective rate:
Effective Rate = Total Monthly Processing Fees / Total Monthly Volume Processed
Higher Transparency with Tandem Innovative Payment Solutions
“As a former Director of Business Banking for a regional bank, I got tired of the way banks and large national merchant companies were confusing business owners with their pricing and monthly statements. I can’t tell you how many business owners I spoke with that had no idea what they were paying for merchant services. That is why I started Tandem Innovative Payment Solutions.” — Founder and President Larry Feniger
Contact us at (864) 672-1570 to learn more about how Tandem handles payment solutions for small- and mid-sized businesses.