Merchant Services and Credit Card Processing: The Crash Course

What it Means for a Business to Take Plastic

"Paper or plastic" these days often doesn't refer to what sort of bag one wants his or her groceries put in. These are forms of payment, and 'plastic' is becoming increasingly trendy. Just about any consumer over the age of eighteen carries - or has carried - some form of credit or debit card with which he or she makes purchases of any number of products and services. What a credit card consumer doesn't often know - but a merchant is typically painfully aware of - is the fact that it costs money for a store to take a credit card. 

See, "paper" is simple. Cash is cash, easy to identify, easy to quantify, and unless one runs into a counterfeit bill, there's not much risk or potential problem with depositing cash. "Plastic", on the other hand, is a completely different animal. There are many different types of credit cards, and one can generally not tell how much money is on that innocuous rectangle just by looking at it. Credit cards are also unique and cannot be duplicated or passed around between multiple consumers. It is the balance left on the credit card that is the means for payment to a merchant for goods or services, and for the services of ascertaining the availability of funds on the card, transferring money from the consumer account to the merchant's account, and keeping track of such transfers via statements both to the consumer and the merchant, a merchant requires a credit card processor and credit card processors all charge money.

So, for each dollar that a merchant gains in revenue via credit card, he or she might actually only be able to keep about 70 cents. Of course, not everyone keeps track of all the nitpicky details as far as how much money is utilized in credit card processing fees, but a difference of ten cents per transaction can mean hundreds of dollars a month. Now, for the convenience of any current or aspiring business owners, here's credit card processing in a nutshell.