04th December 2009
Merchant Credit Card Processing: How It Works
Accepting credit cards is a secretive process. The amount of work that actually goes into the process is actually quite surprising to the common consumer. Merchant credit card processing is amazing and the technology seems to get more elaborate every year.
Accepting credit cards is a secretive process. The amount of work that
actually goes into the process is actually quite surprising to the
common consumer. Merchant credit card processing is amazing and the
technology seems to get more elaborate every year.
It all starts when a customer goes to pay for your product(s) or
service(s) with their credit card. The information from the card is
then recorded, which can be done through several methods, and then
verified so that the merchant (your business) can receive the actual
payment for the transaction.
With this card processing the information can be recorded in four very
different ways. The first way is by manual entry, meaning that the
actual information is entered manually or by hand by the merchant. This
way is uncommon in storefronts and is mostly used now to take orders
via the telephone or through mail.
The second way is use a card imprinter. This used to be the best
technology that the credit card industry had to offer. The customer
would actually hand over their credit card directly to a merchant who
would set the card into the machine and run an imprint (copy) of the
card itself. However, this process has become outdated and it is not
uncommon for the newer generation of consumers to have not ever seen
one of these types of machines.
A point-of-sale (POS) terminal, also called PDQ machines, has become the most common. Often this
machine is a small keypad and screen in which the consumer can slide
their card without having to give the card to the actual merchant. The
terminal will then read the card and either print a receipt for the
consumer’s signature or the terminal may ask for verification PIN code
in which the card is directly debited. Due to the fact the payment card
never leaves the consumer’s hand this way is often thought to be the
most secure method of merchant credit card processing.
The basic steps for processing a transaction look like this:
• Cardholder Makes Purchase
• Authorization is Requested (request for approval)
• Verification is Received
• Purchase is Approved
• Approved Transactions are Stored in a Batch
• Clearing and Settlement (the batch is submitted for funding)
• The Card Issuer Pays (cardholder is billed)
• Funds are Transferred
• Merchant Receives Payment
Usually the entire credit card processing takes about 3 days. Sometimes
there are chargebacks. This simply means there was an error in
processing the transaction or the cardholder disputed the transaction.
In the event that a chargeback occurs the issuer will return the
transaction to the acquirer for resolution. The merchant then receives
the chargeback via the acquirer; at this point the merchant can accept
it or contest it.
Whether you are a small business looking to expand or a large business
looking to expand your options merchant credit card processing is a
great way to do either. Your customers will appreciate the added
options for payment and business will definitely grow.