Getting Exactly What you Need

August 27, 2009

There are definitely obvious benefits to processing credit cards. Allowing your customers access to funding that they otherwise wouldn’t have on hand being one, and access to other services such as gift and loyalty card programs and business cash advance programs being another. We know that in order to keep our customers returning and to generate a new customer base and in turn more cash flow we need to allow our customers to access their credit in order to pay for their goods and services. But do we know exactly how credit card processing works?

There are definitely obvious benefits to processing credit cards. Allowing your customers access to funding that they otherwise wouldn’t have on hand being one, and access to other services such as gift and loyalty card programs and business cash advance programs being another. We know that in order to keep our customers returning and to generate a new customer base and in turn more cash flow we need to allow our customers to access their credit in order to pay for their goods and services. But do we know exactly how credit card processing works?


Merchant Accounts


A merchant account is an account tied directly to your credit card processing terminal. Every time a card is swiped and you submit your transactions at the end of a business day, that cash is going straight into your merchant account. A merchant is necessary for all forms of credit card processing, however there are ways of obtaining processing services if your credit history is not up to par or if you can't get approved for a merchant account on your own.

Standard Credit Card Processing


This type of processing is the most common and the most practical among businesses that have physical brick-and-mortar storefronts, businesses that see their customers in person when they make their purchases.

When you open your merchant account, you will typically be given the option to buy or lease your processing equipment (ie, your "terminal"). Some companies, like Merchant Advisors, will give you your processing equipment for free. Generally, you will be required to sign a contract pertaining to the amount of time you are required to stay with that particular merchant account holder. This is very important to take into consideration, because all companies have different fees and different fee payment schedules. We will delve further into this important issue in our next post.


Online Credit Card Processing

Online and PC-based credit card processing is done without requiring the ownership of any extra physical processing equipment. Online server-based credit card processors have websites that allow access to their clients that enable them to input all necessary information; customer's account number, address, and purchase price; and submits it for approval and then deposits the amount into your merchant account. A merchant account is required, but physical processing equipment, aside from a small reader that will attach to your existing POS terminal in some cases, are not necessary.


This option is most common and most practical among website and e-commerce business owners. Oftentimes, the business owner and merchant account holder will not even have access to the customers' credit card account information, giving the shopper the utmost confidence and peace-of-mind in feeling secure against identity theft.


Third-party Credit Card Processing

Third party processing is essentially borrowing someone else's merchant account. Most commonly, these are online companies that will allow it's customers use of their merchant account for the purpose of processing a credit card for a (generally substantial) fee.


This option is most common for internet users who want to receive and make purchases online using their bank and credit card accounts, but do not process enough to require obtaining their own merchant accounts. Self-made and self-run online businesses, as well as online auction users make up the biggest percentage of third-party processing customers.


Each different type of processing has fee percentages and fee schedules that can differ greatly. Understanding this part of processing your credit cards may just be the most essential.