If you are in the process of setting up credit card processing for your business, you need to be aware of the various types of transactions that can take place. Credit card processing companies will typically charge different rates for different types of transactions, so it’s important to know which type of transaction you’re performing to get the best rate.
In this article, we’ll explain the four most common types of credit card transactions: purchases, cash advances, balance transfers, and foreign transactions. We’ll also provide some tips on how to save money on credit card processing fees.
What is credit card processing?
Credit card processing refers to the process of accepting credit cards as payment for goods or services. This can be done in person, online, or over the phone. Credit card processing companies will typically charge a fee for each transaction, which is generally a percentage of the total purchase price.
This process is also sometimes referred to as “merchant services,” as it is typically businesses that offer credit card processing. Merchant service providers (MSPs) are companies that provide credit card processing services to businesses. MSPs will usually charge a monthly fee, along with a per-transaction fee.
Different types of credit card transactions
There are four main types of credit card transactions: purchases, cash advances, balance transfers, and foreign transactions. Let’s take a look at each one in more detail.
Purchases
A purchase is the most common type of credit card transaction. This is when you use your credit card to pay for goods or services. Purchases can be made in person, online, or over the phone.
Purchases are typically charged a flat fee, plus a percentage of the total purchase price. For example, if you’re being charged 2.5% per transaction, and you make a $100 purchase, your total fee would be $2.50.
Most credit card processing companies will charge a different rate for online purchases, as these are considered to be higher risk. Online purchases are typically charged a higher percentage, plus a flat fee. For example, you may be charged 3.5% plus $0.30 per transaction.
Pre-Authorization
Next up we have the pre-authorization transaction type. Pre-authorizations are essentially a way for businesses to confirm that a customer’s credit card is valid and has the necessary funds available to cover a future purchase. This type of transaction is commonly used in situations where a customer will be making a large purchase, such as buying a car or booking a hotel room.
Pre-authorizations are typically completed by providing the credit card issuer with the necessary information about the upcoming purchase, including the amount of money that will be charged. The issuer will then place a hold on the specified amount of funds on the customer’s credit card. Once the pre-authorization is complete, the customer can use their credit card to make the purchase.
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Capture
The capture transaction type is used to finalize a purchase that was authorized using a pre-authorization. Once the customer has made the purchase, the business will submit a capture request to the credit card issuer to collect the funds that were held in the customer’s account.
This means that if a customer cancels their purchase after a pre-authorization has been completed, the business will not be able to collect the funds unless they submit a capture request.
Void
As the name suggests, the void transaction type is used to cancel a credit card transaction. This can be done for several reasons, such as if the customer changes their mind about a purchase or if the purchase is no longer possible.
Voids can only be completed for transactions that have not yet been settled by the credit card issuer. This means that you cannot void a transaction that has already been submitted for capture.
Refund
The refund transaction type is used to give a customer their money back for a purchase that they have made. This can be done for any reason, such as if the customer is not happy with their purchase or if the product, they purchased is defective.
The refund amount will be debited from the merchant’s account and credited to the customer’s account. This transaction will appear on the customer’s credit card statement as a refund.
Verification
In a nutshell, verification is a $0 transaction. In this case, the merchant is seeking to authenticate the credit card but is not executing a transaction at the moment. This is generally handled in a card-not-present scenario, where the merchant wants to verify but not process a payment.
For many people, this method of payment is utilized to “tokenize” their credit card for later usage. When performing a verification, you’re verifying the credit card number, expiration date, and card security. What isn’t verified is the cardholder’s available balance because no money is sent.
Conclusion
Understanding different types of credit card transactions are important for both merchants and customers. It helps everyone know what to expect when a purchase is made or refunded, and it can help avoid any misunderstandings down the road. So if you’re ever unsure about a transaction on your statement, don’t hesitate to reach out to the merchant or your credit card issuer for clarification.
If you are looking for a secure payment solution for your business, then look no further. We specialize with many years of experience in providing robust payment solutions for businesses of any size. We only use up-to-date technologies to keep you updated with the latest trends. This way we ensure to give your customers the best possible experience. Book a free consultation call with us today, and let us take your business to the next level!
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Book a free call with us to discuss how we can help you expand in new regions, scale, and get the cash flowing in your business.
