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http://www.ecommerce-guide.com/news/news/article.php/118621
By Don Sussis May 16, 2000 How Credit Card Transactions Work Before being able to accept credit card transactions, a merchant will need to set up an account with a merchant bank. A merchant account is an industry term for a banking relationship whereby you and a bank have arranged to accept credit card payments (usually, a local bank can suffice for this kind of relationship). Setting up a merchant account usually involves the bank understanding your business and working with a third-party processor to arrange a mechanism for accepting payments. Once a merchant account and third party processor have been selected and established, an online merchant can begin to accept credit card payments. For illustrative purposes, let''s say that an item you''re selling online is priced at $100.00 and a customer wants to pay for it with a Master or Visa Card (these are far and a way the most popular, handling about 72% of all purchases made by credit card). First, your customer fills out a form on your web page or activates an electronic wallet that holds his/her credit card information. This information is transmitted to you (via a secure or insecure transmission) and then forwarded (automatically) to the third party processor (or "acquiring bank"). Again, third-party processors are specialists or banks that you have hired to process your credit card transactions (examples include: First Data, Paymentech, Bank America Merchant Services). These processors send a secure message to the bank that issued the card ("issuing bank") to the consumer/buyer (for example First National, MBNA, Fleet, etc.). The issuing bank verifies that sufficient credit is available on the consumer''s card, that the account is active, and tries to detect (through a complex set of algorithms) potential fraudulent use of the card. Once the transaction is authorized, the issuing bank sends the "merchant''s processor" the $100 -- the price of the item. The "merchant processor" (now confusingly called the "merchant acquirer") sends the proceeds to the retailer''s bank (this is YOUR bank). There is a fee, however, taken for this service. It is often called a "discount fee," and typically is in the range of 1.5%-2.0%. By negotiating carefully, you may be able to save a lot of money by getting the lowest rate possible. This savings can add up to substantial amounts over time--- so, don''t neglect this! |
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