Payment processing 101: A complete guide of terms you need to know.
What do you need to know to get a merchant account? Basic credit card processing terminology for one. And since lifelong learning may just be the key to a successful business, it never hurts to lock down that knowledge even after you’ve begun processing payments. Here’s our payment processing 101, a complete guide to online payment and credit card processing terms that every health, medical, and wellness business should know:
Merchant Account
Before your organization can become a credit card processing business, you’ll need a merchant account. This specialized bank account boasts a unique identification number known as your merchant ID (MID). Merchant accounts are hosted and managed by merchant – or acquiring – banks.
Acquiring Bank
An acquiring bank is responsible for verifying and authorizing your customers’ POS (point-of-sale) and online payment card transactions. They also make sure all authorized payment requests are met by the appropriate issuing bank (see below), and that these funds are settled to your regular business account.
Issuing Bank
An issuing bank supplies customers with credit (and debit) cards. But whether they offer Visa, MasterCard, Discover, or American Express, they’re ultimately liable for the use of those cards. Issuing banks pay your acquiring bank for any authorized customer purchases, then bill and collect those funds back from their cardholders.
Interchange and Assessment Fees
Credit card companies (like Visa) charge fixed interchange fees that:
- are set by the individual card company,
- range from about 1.5% – 2% of transaction amounts, and
- vary depending on whether your customer swipes their card in person or makes a payment online
Card companies also charge smaller assessment fees that top out at about 0.15% per transaction.
Payment Processor
Payment processors like Beacon offer a range of merchant solutions that streamline credit card processing for small medical businesses. They provide online payment gateways, enable secure POS and contactless payments, and offer mobile credit card processing. Beacon even lets you sync customer payments directly to QuickBooks.
Payment Gateway
You can’t take advantage of eCommerce and online payments without a payment gateway. This simple but powerful technology lets customers use virtual shopping carts to make purchases and pay their bills with the click of a button. Payment gateways also play a pivotal role in transmitting and safeguarding online transactions.
Authorizations/Declines
When your customer pays by credit card, a lightning-fast series of checks and measures unfolds:
- your acquiring bank checks with the issuing bank to confirm the client has adequate funds,
- the issuer approves or declines the payment, and
- if approved, your acquiring bank authorizes the payment and completes the transaction
Sometimes a customer’s payment card gets declined. A “hard decline” means:
- the card is NOT authorized for payment,
- there may be an issue involving account closure, invalid data, or a lost or stolen card, and
- the transaction should NOT be completed
A “soft decline”, meanwhile, refers to a transaction that’s temporarily declined. It can be re-attempted immediately or sometime in the future. Soft declines often occur when card information is entered incorrectly or a customer has insufficient funds.
Chargebacks
As a small business accepting credit cards, your customers may dispute charges they believe are fraudulent or wrong. When that happens, the card issuing bank creates a chargeback (a transaction reversal), and the refund and accompanying fees are taken from your account. You can dispute chargebacks by presenting proof that charges were legitimate and authorized.
PCI DSS
The Payment Card Industry Data Security Standard (PCI DSS) is a mandatory certification that ensures every organization handling customer payment card information is taking steps to protect it. PCI DSS guidelines dictate that a highly secure environment must be maintained around accepting, processing, storing, and transmitting cardholder data.
Remember, the more familiar you get with the terminology used by healthcare payment processing companies, the less time you’ll spend battling the unknown. Use this handy glossary from First Data as your go-to reference for everything payments-related.
If you are looking for a merchant account partner for your business or have any questions about payment processing 101, contact one of our representatives or take our 2 minute assessment to learn how we can improve on your current provider.
