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What is Merchant Credit Card Processing?

By N.M. Shanley
Updated May 17, 2024
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Merchant credit card processing allows retailers to get paid when a customer uses a credit card. The merchant must have merchant credit card account with the different credit card networks, like VISA® and MasterCard® Banks, and other financial companies, can provide credit card merchant services.

Merchant credit card processing can begin at a retail store, on a website, or over the phone. In a store, the seller sends the credit card information to the processor through the cash register, or a stand-alone credit card terminal. The processor sends the request to the appropriate network. The network forwards the request to the bank that issued the credit card. If approved, payment is sent to the seller’s bank account.

Some sellers complete credit card transactions over the phone. Merchant credit card processing over the phone works similarly to retail store transactions. Instead of sending the credit card information through a machine, the seller calls a phone number for credit card approval and payment. This method of credit card payment is used least often due to the time it takes to complete the phone call. It is sometimes used as a backup method when other processing systems experience problems.

Internet merchant credit card processing involves a few more steps, compared to in-person and phone transactions. In addition to a merchant account and processor, an online merchant will need a shopping cart and a secure gateway. The customer sends credit card information to the processor through a secure gateway connected to the shopping cart.

The secure gateway encrypts the customer’s information before it is sent over the Internet to the processor. Online credit card processors may also offer a virtual terminal. This is a secure website that the online merchant can use to process transactions. Virtual terminals are generally used for orders taken over the phone, at a trade show, or at a flea market.

Companies such as PayPal™ and Google™ have simplified credit card merchant services. These companies complete all steps of a credit card transaction. Ecommerce vendors who use these companies for credit card processing do not have to set up their own merchant accounts, processor, or gateway.

A seller can complete merchant credit card processing in one step, or two. In all situations, a merchant can ask for approval and payment, or just approval for a credit card transaction. Smaller vendors can get individual approvals, then then send several transactions through, for payment all at once.

The two-step method is called batch processing. Batch processing involves some risk for the seller, since there is a slight delay between approval and payment. Sometimes, a shopper may exceed their credit card limit during this time, and payment will be denied.

All retailers pay fees for merchant credit card processing. Fees can include set-up fees, network application fees, monthly service charges, and gateway costs. Vendors also pay a percentage of each transaction amount to the processor. Some processors charge an additional fee if a certain minimum monthly sales volume is not met.

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