Everything you Need to Know About Online Credit Card Processing

There are more than 41 million active credit cards in India, with an average of 8.4 million cards being added every year. A recent study found that between 2017 and 2018, the total number of transactions made with credit cards at various point of sale terminals reached Rs. 144.2 million. It shows a steady shift in customer behaviour where an increasing number of people use credit instead of their savings to pay for the necessities.

This change in spending pattern necessitates small and medium-sized enterprises to implement online credit card payment systems. An increasing number of people opt to use credit cards for tickets, dining, or for expensive purchases. Businesses can face severe downturn if they do not implement such systems.

Credit card processing system

Integrating a credit card processing system in a small or medium scale business can seem like a confusing endeavour. However, one can divide the entire process into sections according to their use. It will help a business owner understand the system better.

1. Parties involved – A business owner will have to understand how the transaction happens and what parties are involved in handling the money. It will help them keep track of the entire process and pinpoint any discrepancies. Here are the parties involved in an online credit card payment process.

• Merchant – The business owner receiving the payment from a credit card is called a merchant.

• Card association/brand – Credit card brands like VISA, American Express, MasterCard, etc. play a central role in all credit card transactions. They set the exchange rate, arbitrate between the issuing and acquiring financial institution, and maintain the transaction network. It is crucial to keep track of the changing rate and taxes to effectively implement an online payment system.

• Issuing organisation – The financial institution that issues the customer’s credit card is known as issuing organisation. They lend money for purchases and payments.

• Payment processors – Companies that act as a middle man and handles the process and transaction of the payment are called the payment processors.

2. Payment processing system – Selecting a correct payment processing system is another essential part of setting up a payment system. Older systems may not be compatible with newer chip-based credit cards. Also, companies require different payment processing systems for credit and debit card transactions. Usually, one system is not compatible for both types of cards because of the basic difference between credit card and debit card where the latter functions on an available line of credit.

Some of the most common payment processing systems are the following –

• API – Businesses that require specific payment system for their e-commerce websites or app-based purchases can implement a payment processing API to their infrastructure. Various merchant service providers offer APIs for individual businesses.

• Mobile and online payment gateways – Most credit card companies offer additional discounts and rewards on online transactions. Cards like Bajaj Finserv RBL Bank SuperCard provides up to 2 reward points with each Rs. 100 spent on online shopping. To keep up with the growing demand, business owners largely depend on mobile banking and online payments systems.

3. Pricing – Businesses have to carefully set their prices to ensure they don’t face loss during the entire process. A merchant will have to pay several fees on every transaction. These include –

• Percentage markup – Issuing organisations and card companies charge an additional fee on transactions. It is known as a percentage markup. These can either be a flat rate where every type of card requires the same fee or a tiered rate where different tiered cards mandate different fees.

• Subscription – It is the monthly charge paid to a financial institution to use their online credit card payment system.

Why integrate a credit card payment system?

Online card payment systems are essential to keep pace with the changing economy. A significant number of transactions are performed via credit cards and e-commerce sites every day. Online credit card payment systems offer more options to the prospective customers.

It will also allow a business to cater to a larger customer base. Small and medium scale business can significantly benefit from it as it will allow them to use a credit-based transaction system instead of hard currency.

Credit cards are more secure than ordinary debit cards, which is a driving reason why large scale transactions are often made using credit cards. Companies like Bajaj Finserv offer several layers of security features like ‘zero-fraud liability cover’ and ‘in-hand security’ to mitigate cybercrime and identity theft.

Bajaj Finserv also provides pre-approved offers on credit cards, and a range of other financial products. Such offers not only simplify the process of availing finance but also help save time. An applicant only has to share some essential details online to check your pre-approved offer.

The above mentioned systems are essential to integrate online credit card processing in their systems. It will help them cater to a growing market, streamline their payment system, and increase their revenue stream significantly.