Electronic Retailer Blog

Thinking about adding electronic processing capabilities?
There’s a lot you should know.

There are countless reasons why a business should add credit card and electronic payment processing capabilities: transactional speed, convenience, increased customer satisfaction, improved cash flow, views into sales data and more. But perhaps the most important consideration is the sheer volume of consumers who use non-cash methods as their primary form of payment.

In 2005, credit card and electronic transactions accounted for an overwhelming $3.4 trillion of total U.S. payments, according to The Nilson Report. That’s 50 percent of all transactions nationwide for that year. More recently, Visa USA estimated that nearly 60 percent of U.S. consumers aged 18 to 25 use cards as their primary payment method.

So while the reasons for adding payment processing are clear, understanding all your options and which are right for your business is far more complex. This article will give you the information you need to get started in setting up payment capabilities for your business, and it will provide some of the essential details you need to consider when selecting a provider.

How Payment Processing Works
Some form of the modern credit card has been in use since the late 19th century, mostly as department store charge cards representing lines of credit. Things have changed and today, the step a merchant needs to take in order to accept credit card payments is to establish a merchant account with a bank or third-party payment provider. Once your account is live, the transaction process generally works as follows:

1. A customer presents a credit card for payment.

2. By swiping the credit card through an electronic point-of-sale (POS) transaction terminal, typically provided by the bank or payment provider, an electronic request is submitted to the processing network for authorization.

3. The processing network receives your electronic request and determines if the cardholder’s account is valid and if the funds are available. If so, a response called an “authorization code” is transmitted, guaranteeing your access to the funds.

4. A receipt is then printed for the customer using the POS terminal or your computer. The customer then signs the receipt and, for their part, the transaction is complete.

5. At the end of the business day, a merchant will electronically submit a final request to the processing network to “capture the funds” for all authorized transactions in a given day. This process is referred to as settlement. Once approved, a response is generated to your electronic terminal or computer.

6. From there, the funds associated with the batch you settled are deposited electronically into your business bank account, usually within 48 to 72 hours. Typically, the rate and any fees paid to your merchant account provider are deducted from your account at the end of the month.

7. At the end of the month, your merchant account provider will send a statement to you, detailing the credit card activity for the month and the associated fees you’ve been charged.

This process describes what happens in a traditional retail, or “brick and mortar” sales environment. For Internet and e-commerce merchants, the set-up process requires a few additional steps. (more…)

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