How Credit Card Processing Companies Make Money

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Want to start a credit card processing company but don’t know what its main revenue sources are? Or maybe you are looking for the best credit card processing company to work for but first want to know how they make money? Well, whichever reason has brought you here, your search has ended.

This guide will offer you insights and all the answers that you are seeking regarding the revenue streams of the credit card processing agent program and how they operate. We will also tell you what goes on behind the scenes when the credit card is swept through the POS terminal. So if you are ready, then make sure to give this guide a thorough read:

So How Do The Processing Companies Make Money?

Before we move on towards the revenue sources of the credit card companies, you should know that we are talking about 2 different kinds of processors here.

· The first one is the main companies that issue your cards like American Express, VISA, or Master Card. You can know which one is yours by looking at the bottom right corner of the card, your company’s logo will be printed there. Credit card processing companies make money through various avenues, and a big chunk of their income is made through interests levied on people who do not pay their loan amount back on time.

· The second one, the ISO (Independent Sales Organization), is specially authorized to handle the merchant accounts and are connected with the banks, credit card processing companies, and other financial institutes. Their main source of revenue is the fee that is charged from the merchants for every transaction that is made (we will discuss this process at the end of the article). They also make money by selling their equipment like POS terminals and mobile payment devices etc.

So now that you have a pretty good idea of who is who and what is what, let’s talk about the revenue sources for both of them:

Revenue Streams of Credit Card Processing Companies:

1. They Earn from Fees:

The most common and typical way for credit card companies to make money is by charging fees from their users for owning the cards and also using them for various purposes. Let’s see some of them:

Transaction Fees:

These are the small percentage of fees that companies charge for every transaction you make using a credit card issued by them.

Each time you either withdraw money from ATM or swipe the card at a POS terminal, you are charged a fee. This percentage is different depending on the card processor you are using.

Annual Fee:

The annual fee is a pretty common example of how credit card processing companies earn from charging fees. Here, they can charge anywhere from $10 to up to $900, depending on which type of card you have.

The annual fee is usually charged in exchange for some rewards that the customers receive each year, like vouchers, bonuses, and coupons. However, you need to ensure that the annual fee is not higher than the worth of reward.

Dishonored Payments:

These are the kind of fees that are charged for the payments you try to make but don’t have enough funds for them. You will typically be charged around $50 for every dishonored transaction that you make.

You can avoid paying the dishonored fee if you have enough money in your account for a transaction. So make sure to always keep the amount in the bank that can cover any payment you are about to make.

Foreign Exchange Fee:

These are the fees that you are charged with when buying something in a different currency than your card’s local currency. For instance, if you are buying a pair of shoes from AliExpress (Chinese eCommerce website), then you might pay in RMB instead of dollars.

So to convert your card’s dollars amount into RMB, the processing company will charge some foreign exchange fee from you. This percentage of the fee is usually 2.5%. And if you want to avoid this fee altogether, then look for the companies that don’t charge it; there are some out there, you just need to look for them.

2. They Charge Interest:

The credit card processing companies also make money by charging interest rates on any outstanding balance. The fee is usually high on the amount that is not paid after the payment duration has passed. The interest rates that different credit card companies charge can go up to 20% and even cancel any annual rewards you were eligible for.

To avoid all of this, you need to make timely payments and take as little credit as you can. The interest rate can quickly accumulate to a giant amount.

3. They Sell Data:

Another very interesting way that credit card companies use to make money is by gathering your personal information and using it in different ways. They can have a look at your transaction history, your debts, your credit score, and other factors to sell you their own plans made to help you improve any area of your finances where you are weak.

There is usually a ‘Consent to Collect’ clause in credit card agreement, which allows them to collect and use your personal information. So if you agree to this, they will sell your personal information to other businesses like mailing lists and get some money off of it. You can choose to disagree to that clause and then they won’t use or share your information.

Although it is not directly related, companies also allow other businesses some space on the financial statements to print their ads. These statements are usually sent to end-users, so that’s how different businesses market their products/services, and credit card companies charge them for it.

Revenue Streams of ISO Credit Card Processing Companies:

As discussed above, the ISO credit card companies are different from the conventional processing companies and only handle merchant transactions. One of the examples is the North American Bancard agent program, where they offer only merchant credit card processing services. Let’s see how these ISO processors make money:

1. Processing Credit Card Transactions:

As discussed above, this is their main source of revenue, and if you start a credit card processing company, you will, too, depend on this source of income. The best part about it is that it is recurring income as long as the merchant is in business or is working with you.

The percentage of fee range from processor to processor and you will have to ask the merchant services reseller program about theirs. There are also some other fees than transactions such as the maintenance fees, which also earn some revenue to the credit card processors.

2. Selling or Leasing Equipment:

This is another method of earning that many ISO credit card processing companies use to make some money. These companies have their own POS terminals, mobile payment systems, and other equipment that they sell to the merchants for some profit.

Some also offer a lease option. They rent out the equipment and enjoy monthly income through that as well. However, some of the best credit card processing agent programs like the North America Bancard agent program offer the equipment for free to get more sales and build good relations with merchants.

How Does The Merchant Credit Card Processing Work?

The process is really simple. But if you want to know what goes on behind the scenes when that black stripe is swept against the electronic reader in the terminal then here’s the full process:

· Let’s say the customer visiting a store makes a purchase of $10 using his/her credit card. Now the customer swipes the card from the payment processing terminal AKA POS terminal, which can be from any company, doesn’t make much difference.

· Once the card goes through, the card reader will quickly recognize the customer and will contact the bank that issued the card.

· The bank of the customer will send $10 to the merchant’s bank, but instead of putting all $10 into the account, the bank will charge a processing fee, which can be 2% and deposit $9.8 into the merchant’s account.

· So the 20 cents charged by the bank will then be split with the credit card company, and that way, both the regulator and the processor make money.

Keep in mind that depending on the processing company, location, and the merchant, the fees can vary from %1 to up to %6.

North American Bancard Agent Program, however, uses the Cash Discounting approach where the fee is paid by the end-user allowing the merchant to save a lot of money. This makes them the best credit card processing company to work for as more merchants will be attracted to their services.

Written by

At Shaw Merchant Group we specialize in merchant services agent and ISO development. We are a group of experienced payment processing industry professionals.

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