Charge Card Systems Blog

Merchant Account Basics

  

  

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A merchant account is an account that is set up with a credit card processor, acquirer, or other financial institution, which makes it possible for a business to accept bank cards and electronic funds as a form of payment for products or services rendered. Merchant accounts are linked to a standard business checking account or direct deposit account (DDA) and all funds from sales are electronically deposited into this account via the automated clearing house (ACH) by the acquiring bank.

How Merchant Accounts Function

There are a lot of things that happen from the time that a merchant charges a customer's credit card to when it's authorized. The process requires multiple financial institutions and electronic transfer systems to deliver the final product.

It is not necessary to know most of the information in order to acquire and maintain the best merchant account for your business. Instead, here is the basic flow of an electronic bank card transaction process below. When a merchant runs a customer's credit card the following process takes place:

• The terminal, software, or gateway contacts the credit card processor (referred to as a third-party processor), or the acquiring bank, with the customer's credit card and billing information along with the transaction information such as the amount of the sale.
• The processor or bank then relays the information to the issuing bank or card-issuing organization. This is the place where the customer's credit card comes from.
• The issuing bank then sends an approval or decline back to the third-party processor based on a number of different criteria such as available balance, validity of the information supplied, etc.
• Once the approval (or decline) is confirmed by the issuing bank, an authorization is issued against the customer's credit balance. This means that the funds in question have been reserved for the sale.
• The transaction is then assigned an authorization number which is a code that identifies the individual transaction.
• This information is relayed back to the merchant's processing equipment and is displayed for their records so that they know the credit card has been approved (or declined).
• All authorizations are stored by the credit card equipment in something called a batch. Batches are very important and will be discussed in upcoming blogs.

To learn more or find out if you're getting the best rates on your merchant account, click here for a FREE RATE ANALYIS