Transaction

Banks, which are members of the Credit Card Associations of Visa and MasterCard, do underwriting of small business merchant accounts. The underwriting procedure consists of evaluating the risks, linked with allowing a merchant to accept credit cards through a detailed analysis of the applicant's credit history and the business history. Banks always make sure that applicants are responsible entities, because, in effect, a merchant account processing service is a form of recognition.

When a merchant receives a card payment, it is approved, cleared and settled by the credit card merchant processor. At the end of the business day the processor receives the transaction related information and transfers the amount, after subtracting its processing costs, into the merchant's account. Then it waits for the card-issuing bank to pass on the payment amount. During the process, if the issuer or the cardholder raises the disputes over transaction, initiating a charge back, or if it turns out that the transaction was fraudulent, the processor may never receive its money. If a merchant generates a over and over again high level of charge backs of over 1%, the Credit Card Associations will charge fines on the credit card processing company that has underwritten the account.

Merchants usually obtain processing service from Independent Sales Organizations. These are certified by the Credit Card Associations and have dealings with credit card processing banks. Once a work agreement is signed, the processing bank, also known as a merchant bank or acquiring bank, commits to acquire the merchant's card transactions and fund the transaction amount minus the processing costs. Processing banks are usually card issuers as well.

The supplier of the credit card loads a payment into the system for the easy and systematic flow of work. During the transaction, the card supplier acts as the middleman. The credit card numbers and expiration dates give the owner of the card the authorization. Once the transaction is complete, a confirmation number is sent to the institutions. Credit cards can be accessed online as well as offline.

Processing of Credit Cards Offline

Processing cards offline is a very slow and tedious process. The processing of the card is not as complex as online processing, and you do not have to take the card in-hand at the time of payment processing. Processing cards offline is much cheaper than online processing because of this reason.

Processing Credit Cards Online (Real-time Credit card processing)

In online processing, orders are processed, and all authorizations and authentications are immediate. The credit card owner does the transactions, and the retailer captures them via an online mercantile account. An online mercantile account accepts payments over the Internet, and then processes them. The processor of the credit card has a special account that ties to the mercantile account.

The salesman then verifies the proprietor of the card, once the card is approved the owner is notified of the acceptance and then his order is booked. The total amount that will be billed to the credit card is also intimated to the cardholder at the time of order booking. It is expensive to accept cards in real-time, and is also a complex process.
Only those merchants that perform large amounts of credit card transactions should do online card processing, because to the buyers, this is the fastest way to process their cards.

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