How Credit Card Merchant Accounts Work

Having a merchant account allows a business to accept credit cards. Using credit card merchant accounts may seem very quick and simple. All it seemingly takes is a quick swipe or entry into a computer. But the entire process is not as simple as it may seem. Money from a credit card holder’s account doesn’t necessarily transfer to a business automatically and instantaneously. There’s a whole process that happens within a few days to make a transaction from a cardholder’s account into the merchant account totally complete.

The very first part of the whole process is rather quick, usually taking seconds. After a card has been swiped or entered in a computer to be processed over the web, an electronic request goes through to a payment processor, asking or requesting if there is enough funds available for the payment. If so, the card is accepted, and the money is essentially put on hold in the customer’s account, reducing their available credit. Sometimes it will look like a pending transaction on the customer’s bank statements. An authorization code is issued, and receipts are printed at this point. The customer will be able to walk out with their purchases. Things are pretty much complete on the credit card holder’s end. However, the card may also be declined because maybe the card in invalid somehow or the bank from which the card was issued verifies that there are not enough funds available in the cardholders account, and the transaction will not be completed.

The next part of the transaction is often called the settlement process because at the end of the day, the batch of transactions is settled. Each transaction and their authorization codes are saved in the batch, and are electronically checked through the processing network. The merchant account provider then sends the information over to the credit card companies, and then the issuing bank in turn bills the cardholder. The bank transfers the payments to the merchant account provider and eventually the money goes into the business checking account of the business. The transaction fees and discount rate will be deducted from the deposit before so.

Methods of Collecting Payment
When businesses have credit card merchant accounts, they can collect credit card information in a number of ways. One way that many retail outlets collect info is though credit card terminals, which allow you to swipe the card. They are small, stand alone units with display screens and number pads that communicate to the appropriate networks via a phone line or internet connection.  Some terminals will have more features than others, such as greater memory or built-in printers. Ecommerce sites or online retailers will typically use a payment gateway to process payments. Payment gateways can be used by online merchants and by merchants with traditional brick and mortars, where merchants log in to a virtual terminal online and enter credit card info.  For online purchases, the website’s shopping cart software connects with the payment gateway to process the transactions. Payment gateways allow the credit card information to be securely transferred over the web by using SSL, or Secure Socket Layer, encryption.

Earlier methods that were used included sending credit card slips to a merchant by mail or using ARU’s, or Automated Response Units, which involve the merchant entering information over the telephone after first imprinting the card. Electronic methods such as terminals and payment gateways are more greatly used for their ease, speed, and the chances for credit card fraud and stolen credit card numbers is reduced when a card is swiped instead of being imprinted and sent in the mail.