Merchant Accounts & Credit Cards

The Banks associated with the Credit Card Associations of Visa and MasterCard make underwriting of small business merchant accounts. The underwriting process involves evaluating the risks, connected with permitting a merchant to accept credit cards through a thorough analysis of the applicant's previous credit history and the business' previous processing history. Banks want to ensure that applicants are real entities, because, in effect, a merchant account processing service is a type of credit.

A merchant gets a card payment when it is authorized, verified, cleared and settled by the credit card merchant processor. In a business day’s closing the processor receives the transaction information and funds the amount, deducting its processing costs, into the checking account of the merchant. Then it looks for the card-issuing bank to remit the payment amount. At this point, if there arise some disputes by the issuer or their cardholder about the transaction, leading up a charge back, or if it is found that there is foul play in transaction, the processor may never receive its money. Also, if a merchant renders a systematically high level of charge backs, say over 1%, the Credit Card Associations will then assess fines on the credit card processing company, which has underwritten the account.

Merchants generally receive their processing service from Independent Sales Organizations that are licensed by the Credit Card Associations and keep business relationships with credit card processing banks. When a processing agreement is signed, the processing bank (merchant bank or acquiring bank), commits to gaining the merchant's card transactions and funding the transaction amount deducting the processing costs involved. Processing banks also acts as card issuers.

In order to make the system working, the supplier of the credit card loads a payment into the system. Throughout the transaction process, the card supplier will remain as the mediator. The owner of the card gets the authorization through the credit card numbers and expiration dates. Confirmation numbers will be given to the institutions when the transaction is complete.

Offline Processing of Credit Cards

The offline method of processing cards is a very slow process. But it has the advantage that it is less complicated to set up compared to online processing and one also need not to have the card in-hand at the time of payment processing. Offline processing of cards is thus much cheaper than online processing.

Online or Real-time Processing Credit Cards

When you use online service, orders are processed automatically and all authorizations are instantaneous. The credit card owner does the transactions, and the retailer captures them through an online mercantile account. An online mercantile account first accepts payments over the Internet, and then processes them. The processor of the credit card has a unique account that has links to the mercantile account.

In the next step after the approval of the card, the salesman verifies the owner of the card and then notifies him/her of the accepted order and the total amount that will be billed to the credit card. It is really a complicated process and also little bit expensive to accept cards in real-time. Those merchants that carry out large amounts of credit card transactions are only advised to go for online card processing, because time is more important for them than card processing fees.

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