Though it’s not necessary to be an expert regarding the ins and outs of payment processing in order to run a successful business and accept credit card payments, it is advisable to develop a basic understanding of how the process works. This will help you make the right choices for your company. In this article, we will give a brief overview of how the payment processing procedure works, and we will also detail four common mistakes that business owners frequently commit.

Payment Processing     

  • Issuing bank. When a credit card purchase is made, the bank that issued the credit card makes an initial payment. (Which will, of course, eventually be paid by the customer, however, the payment made by the financial institution is final, and business owners do not need to worry about whether or not the customer pays his credit card bill.)
  • Acquiring bank. After a waiting period, funds will be made available to the merchant through their business account with the acquiring bank.
  • Merchant Service Provider. In order for merchants to facilitate this transition between issuing and acquiring banks, hardware and a payment processing system are needed. Some banks function as merchant service providers, however, 3rd party companies (ISO – Independent Sales Organization) specializing in these services are becoming increasingly popular.
  • Card Association. Visa and Mastercard are the most widely known (and widely accepted) of these governing bodies in charge of regulating, clearing, and arbitrating transactions between issuing and acquiring banks.


Mistakes to Avoid

  1. Choosing the wrong bank. Deciding on a bank with sub-optimal terms for your merchant account can be the first wrong step. Acquiring banks all charge varying fees for their services. Be sure to find the right bank and the right plan for your business needs. Another mistake that is made with a bank is assuming your bank will be the best MSP (merchant service provider). Banks make their money primarily through loaning capital: providing payment processing systems and hardware is not their specialty, and banks are rarely the best merchant service providers on the market.
  2. Choosing an MSP that does not value security. This can be a very costly mistake: be sure to choose a merchant service provider that places emphasis on keeping you and your customer’s data safe. In this day and age, no one can be too careful when money is involved, its best to be extra careful and diligent when it comes to security.
  3. Signing a merchant contract that you do not fully understand. Merchants sign payment processing contracts for 2-5 years and half the time do not understand what they are signing and agreeing to. A large number of MSPs have learned that contracts do not make happy merchants and have done away with them, but there is still a fair amount who use them. Read the fine print before you sign. Ask questions. Be 100% positive that a contract is the best option for you or it could turn into a costly mistake.
  4. Sacrificing Customer Service to save money. Everyone likes a good deal but the age old saying of “You Get What You Pay For” says a lot here. Switching to a service provider that offers you a great deal but lacks customer service is not worth the savings.


NXGEN is a merchant service provider you can count on. Visit us online today to learn more.