Merchant Card Processing

Banks having membership of the Credit Card Associations with Visa and MasterCard carry out underwriting of small business merchant accounts. The underwriting process includes evaluating the risks associated in allowing a merchant to accept credit cards by a detailed analysis of the applicant's credit score history and the previous business history (if exist). Banks need surety that applicants are the responsible entities, because in fact, a merchant account processing service is one form of credit.

Whenever a merchant receives a card payment, it is authenticated, cleared and settled by a credit card merchant processor. Now at the end of the day the amount after deducting its processing costs into the merchant's verification account. Then it waits for card-issuing bank to reimburse the payment amount. At this point, if the issuer or their cardholder disputes the transaction, initiating a charge back, or if it turns out that the transaction was fraudulent, the processor may never receive its money. Additionally, if a merchant generates repeatedly high level of charge backs (over 1%), the Credit Card Associations will assess fines on the credit card processing company that has underwritten the account.

Merchants normally receive their processing service from the Independent Sales Organizations. These are licensed by Credit Card Associations and have business relations with credit card processing banks. As processing agreement is signed, the processing bank i.e. a merchant bank or acquiring bank commits to acquire the merchant's card transactions and fund the transaction amount deducted with the processing costs. Processing banks are usually card issuers also.

To make this work, the supplier of the credit card loads a payment into the system. During the transaction, the card supplier acts as the middleman. The credit card numbers and dates of expiration give the owner of the card the authorization & further access. As soon as the transaction is over, confirmation numbers are sent to the institutions. There exist two ways by which the credit cards are processed and they are Online and offline.

In First case i.e. processing of cards offline is a very slow process. Its set up is not as complicated as that of online processing and you need not to have the card in-hand at the while payment processing. Processing of cards offline is cheaper than online processing for this reason only.

In online processing, orders are processed fast and all authorizations bit immediate. The credit card owner makes the transactions and retailer captures them on online mercantile account. This online mercantile account accepts payments over the Internet and processes them. The credit card processor has a special account that tie up with mercantile account.

The salesman then verifies the owner of the card once the card is approved, and then the owner is then notified of the accepted order and the total amount that will be billed to the credit card. In real-time, it is much expensive to accept cards and it is a complicated process too.
Only merchants those perform large amounts of credit card transactions should conduct online card processing because for buyers, this is the fastest way to process their cards.

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