How Merchant Credit Card Processing Works

Before choosing a provider you're better to learn how merchant credit card processing works: read carefully the following article by Jack Kimball:

Internet payment processing is very similar to storefront credit card processing -- allowing someone to buy your product or service using a credit card such as Visa, Master Card, American Express or Discover.

Here is the main difference: instead of swiping a plastic card thru a cash register or terminal magnetic stripe card reader, you or your customer must enter the credit card number into an online system that sends the data on its way. You can accept an online order in one of two ways:

Merchant Credit Card Processing On Your Web Site

When customers order direct from your Web site using their computer keyboard to enter billing, shipping, and credit card information this can be handled in different ways. The first way is through a real time processing, meaning the customer will know right then if the credit card has been approved.

The advantage to this is that if the credit card is declined for some reason the customer can automatically be prompted to make the change without the merchant having to chase down the customer later. The likelihood is therefore greater for credit card orders being approved then if the orders were to come in on a secure page only without real time.

In any event, keep in mind that if the customer is ordering from your Web site you must have a secure page (https) to stay in compliance with MasterCard/Visa regulations. Many Merchants use a shopping cart and catalog interface, even if making available only one product for sale.

Merchant Credit Card Processing Via Your Computer

In this case, your customer calls or faxes you an order, and you enter the billing and shipping details into a secure online payment page accessed via your PC or laptop's browser software. An example of a virtual terminal solution is Virtual LinkPoint by Cardservice International. Make sure that the Merchant Account Provider offers both a real time and a virtual terminal. Even if you offer real time, a customer may still be more comfortable calling in or mailing in their order.

Authorization & Settlement

The two key transactions that advance funds into your bank account are called Authorization and Settlement. In simple terms, Authorization is when you get an authorization code from the bank that issued the customer's credit card. This is your green light to fill the order. Settlement is when you ship the product and the funds are moved from the customer's credit card bank to your bank account. Here are the basic steps of Authorization and Settlement:

1. Order is placed by customer via your Web site shopping cart in real time or phone/person for manual entry.

2. The Payment Gateway (PG) captures credit card data and sends it to Merchant Account Processing Bank (MAPB).

3. MAPB forwards credit card data to institution that issued the credit card.

4. The issuing institution verifies address, then accepts or declines payment. If accepted, the issuing institution will send an authorization code to the MAPB.

5. The MAPB receives the authorization code and is now ready to distribute funds to the merchant when order is ãsettledä.

6. PG receives authorization code and records transaction details.

7. You get a message from PG that transaction is authorized.

8. You ship product or provide services to customer.

You complete the transaction in your PG tracking system and capture the funds to your bank account. Usually funds are moved or settled from the MAPB to your business account in approximately 48 hours.