Merchant Credit Card Processing

Merchant credit card processing, or merchant services, involves handling electronic payment transactions on behalf of a merchant. This involves obtaining sales information, receiving authorization from card issuers, collecting funds from the issuing bank, and sending payment to the merchant.

Every credit card transaction involves 4 main parties:

• The merchant who receives the payment
• The bank the merchant uses to receive the processing services (aka the payment processor or the acquiring bank)
• The bank that issues the card to the customer (or the issuing bank), and
• The customer

Fees are paid to the issuing bank and the merchant services provider so the amount the merchant receives will be slightly less than the amount charged by the customer.

The fee the issuing bank charges is called the interchange fee, and this fee depends on many things, including: the type of transaction, the associated risk of the transaction, the type of card, and the volume of the merchant. The bank or company that provides merchant credit card processing services charges the discount rate, which may be alongside other fees. Both of these fees are a percentage of the transaction, usually with a small fixed rate per transaction.

When you want to accept credit and debit cards, you will be working with the acquiring bank. This entity’s responsibilities are often split between the merchant service provider, who you will be in contact with. In many cases, there is another entity behind the merchant account provider: the credit card processing company. This entity will perform the mechanics of the transactions, including transmitting information between parties.