Internet merchants use an online merchant account to process credit card transactions online. A credit card network, like VISA® or MasterCard®, provides this account through the merchant’s bank. Merchants use these accounts to transfer funds to and from credit card processors. They also need an online shopping cart, a gateway, and a credit card processor to access an Internet merchant account.
Different networks must approve the merchant account. For example, an ecommerce seller wishing to accept VISA®, MasterCard®, Discover®, and American Express®, must apply to all four networks. Generally, the credit card processor collects and submits these applications to the different networks. Some processors charge an application fee for each network.
Each piece of a credit card processing program costs money. A bank, credit card processor, online merchant account provider, or a combination of these companies provides these different pieces. Fees usually include a set-up fee, monthly service charge, a gateway fee, and a transaction fee. The transaction fee is usually a percentage of the sale price. Some companies charge a minimum fee if certain minimum sales volumes are not met each month.
Some companies, such as Pay Pal™ and Google™, provide all the pieces that an Internet seller needs for credit card processing. Merchants who use these options do not have to apply for their own online merchant accounts. Generally, these options can be better for smaller merchants that do not have enough sales volume to negotiate price discounts. Large merchants sometimes take advantage of these programs too.
An online merchant account acts as a link for credit card transactions. Customers place an order using the seller’s shopping cart. Shopping carts typically include an online gateway that allows the purchaser to use a credit card.
The gateway provides a secure Internet connection to the processor. The customer’s credit card information is encrypted before it is sent over the Internet. This can help protect the customer from identity thieves. The merchant also gains credibility with the customer by providing secure transactions.
This processor sends a payment request to the credit card network. Next, the network sends a payment request to the customer’s bank, in other words, the one that issued the credit card. Once the transaction is approved, payment is sent through the online merchant account to the seller’s bank account.
All companies involved during the credit card process make money for each transaction that is processed. This is why the Internet merchant is charged different fees each month. Sellers can shop around on the Internet for online merchant account providers to compare costs.