How do Credit Card Processors Work?

One comment

1. 

   Shirdi on December 28, 2009 at 9:35 am

   How does it work?
   This can be one of the more confusing areas of the whole Internet payments processing function. It turns out it’s not too bad to understand if it’s broken down into steps.

   A Tale of Two Accounts

   You have two accounts. One is your regular bank account, usually a checking account. This is where the money winds up when the process is complete. The second is your merchant account. This is the account that processes the credit cards you receive. Your merchant account may be with the same bank that you have your regular bank account with. Frequently, it’s not.

   Banks that specialize in handling merchant accounts, especially for internet merchant accounts, are usually easier to deal with when setting up a new account. When I say "easier to deal with" I mean they require less paper work and they give you a faster response. At the bottom of this write up you’ll find a list of Merchant Banks we work with.

   Two other participants are involved in the transaction as well. Your eCOMpal shopping cart and a credit card processor.

   Choosing Partners

   There are four independent "partners" in the process.

   You and your regular bank account. You’re selling the goods and services to your customer. The customer’s payment winds up in your bank account.

   eCOMpal is the shopping cart the gets your customer’s payment information in a secure manner so no one else can see it. After it’s collected, eCOMpal connects to the credit card processor and passes the information to them and waits for a response. After processing is completed, eCOMpal receives the response from the credit card processor with the accept or decline of the credit card.

   The credit card processor is an intermediary between eCOMpal and different banks that work with them. The credit card processors provide the "plumbing" that allows your customer’s information to flow from eCOMpal to the bank that hosts your merchant account. It also works with the bank that issued your customer’s credit card to verify the account and accept or decline the transaction.

   The bank that hosts your merchant account is the financial institution that actually provides the bank-to-bank processing of the transaction. They send a transaction to your customer’s credit card bank taking the money from (or adding the money to the balance of) your customer’s credit card. They then deduct their processing fees and send the balance to your bank account, which you see a couple of days later, and the loop is complete.

   Here’s how it works

   When your customer checks out at eCOMpal, by entering her credit card number we communicate with the credit card processor (the information is encrypted so no one can see the credit card number). The credit card processor figures out what bank issued the card and calls it electronically to ask if the card is ok. The issuing bank (i.e. your customers’ bank) checks the account and sends a Yes or No to the credit card processor.

   When the credit card processor receives the response it passes it back to the shopping cart. The shopping cart tells the customer what the response is and continues doing its processing, sending emails, etc. If the answer is Yes, the credit card processor records the transaction for processing later in the day.

   Once a day the credit card processor wraps up your transactions for the day into a "batch". It tells each of the issuing banks (your customers’ bank) how much to send to your merchant account. This is all done electronically, of course. Your merchant account now has the funds from each of your customers’ purchases.

   Usually about two days after the original sale the money is transferred to your bank account. Transaction fees have been deducted which sometimes makes it a challenge to figure out what was deposited and when. A $100 sale winds up as a deposit of $97.28 or some such amount.

   Comparison Shopping

   Different merchant account banks work with different credit card processors. We have several credit card processors we work with. Check them out and compare the rates. We have chosen those that we feel offer competitive rates and provide excellent service. If you’re working with a credit card processor that we don’t currently support, let us know and we’ll see about adding them to our list. Click here to see the Credit Card Processors we work with currently.