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
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
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.