Credit card processing in a nutshell

A real revolution is taking place in the payment market. Credit cards, which used to be many people’s favorite way to pay around the world, are now breaking records in their popularity. In North America alone, people spend more than $3 trillion a year paying for purchases with credit cards. Every year this figure is growing by 7-10 percent.

If we talk about the money companies spend on payment processing, we get about $85 billion a year. Given those numbers, it’s no wonder why so many companies are providing payment processing services, even though just a few years ago only the big banks could do that.

Another interesting trend is that people are abandoning cash and check-writing in favor of credit card payments.

In North America alone, there are 31 million companies providing services to their customers. Worldwide, the number of such companies is in the hundreds. However, credit cards as a payment is accepted by about 38% of all companies. Considering the high popularity of credit cards, there is no doubt that this figure will continue to grow, because the acceptance of credit cards allows companies to remain competitive in the market.

If we are talking about selling goods, companies are sellers and people who go to their website to search for what they want are customers. If we’re talking about payment processing, the clients are just about all the companies that offer goods, and the sellers are the big banks and smaller companies that specialize in payment processing.

Speaking about the commission for using credit cards, it is worth noting that it is about 2.3%. This fee is determined by the amount of all payments that have been processed. It is important to note that more than half of all fees the processing companies in the U.S. receive from the 150 largest firms. Their number is about 20% of the total number of all firms. As for the other 80% of firms, they bring in no more than 2-3 percent of total revenue to payment processing companies.

 

What companies do payment processing companies depend on?

 

In order to understand what the direct cost that a company will pay for payment processing service depends on, it is necessary to list all the firms that are involved in this process and that generate revenue from such operations.

Some firms are not part of the value chain, but without them, payment processing would not be possible. As you have probably guessed, we are talking about companies that specialize in the production of payment terminals. Without these terminals, it would be impossible to accept credit card payments, but at the same time, these firms do not receive direct revenue from payment processing. They receive their profit at the moment when the operation to sell the equipment is successfully completed.

The following companies are included in the payment processing value chain and derive their revenues directly from this processing:

  • Banks that issue a credit card. Before a customer can pay with a credit card for goods and services, they must first obtain the card from somewhere. They do this at banks or credit unions and pay their own fees.
  • Card network. The best-known examples of card networks are MasterCard and VISA. These networks not only set the bank fees, but also create rules that every company accepting card payments must meet
  • Payment processor. A payment processor’s main job is to process card transactions and provide merchant account services. These firms take care of issues related to the installation and configuration of software, support the company at all stages, ensuring the ability to accept card payments.

The final commission for a transaction is approximately 2.3% of the amount. If a buyer pays $100 for an item, the seller will receive $97 and 70 cents of that amount, while $2 and 30 cents will go as a commission for credit card processing services.

It’s worth mentioning that there are certain tendencies in the sphere of clients’ payments processing, which will influence and change the whole branch in future. In particular, we are talking about the organization of payment for goods using mobile devices, a significant increase in the popularity of e-commerce, the use of online banking, as well as cryptocurrency as a payment method.

 

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