Card Payment Processing & Merchant Accounts – How it Works
Although it’s been around for quite some time, credit card processing technology has evolved incredibly. Yet, the process itself remains quite simple.
When we swipe credit cards or enter our card numbers online for purchases, we rarely consider the transaction process and are more interested in the product or services that we’ve just purchased.
But, have you ever wondered exactly how credit card processing works? For those that are curious – perhaps you’re an online business owner or are planning on starting a business, or you are a customer that has swiped a card through a reader thousands of times – here is some insight.
Although the process is pretty technical in order to ensure the integrity of the merchants’ data and customers’ information, every transaction, whether at a gas station, department store, or online retailer, is very similar in nature, and as stated above, kind of simple.
A business with goods or services for sale utilizes an account known as a ‘merchant account’ to collect payments from customers. A merchant account is provided by a credit card processor and the merchant is billed a monthly service fee (usually), in addition to transaction costs based on specified transaction fees.
When a customer swipes their credit card, or enters the credit card number online, the information is sent to the merchant’s system and then encrypted and forwarded to the credit card processor.
A very quick authorization process ensues between the processor and the card issuer, in which the transaction is either declined or approved. If declined, the issuer immediately notifies the processor and the processor in turn notifies the merchant. If the card issuer approves the transaction, an authorization code is sent to the processor.
The card issuer will then debit funds from the cardholder’s account and place that amount in holding. The customer will receive a receipt of payment by the merchant.
All sales for the day are sent to the credit card processor at the same time, in a batch. The processing company then submits each transaction to the individual card issuing banks for payment.
The credit card processing company will receive funds and forward funds to the merchant in a specified period of time, which is typically between 24 and 72 hours.
Once this process is complete and assuming that the customer is satisfied with the product or service they’ve purchased, everybody’s happy. The cycle goes on and on as long as the merchant remains in business.
If you need a merchant account for your business, whether you have an online store or brick-and-mortar store, check out The Transaction Group. The Transaction Group offers low rates and a fast and easy application and approval process.