Merchant Account Pricing

There are two parts to every merchant account transaction. The first component to the transaction is the authorization and second part is the actual processing of the charge.

Depending on whether the merchant account is for an ecommerce business or a retail store, the general process of the transaction is slightly different. The authorization component begins during checkout when the purchaser is asked to specify the payment method which they will be using. For a retail shopper, that payment method could be cash, check, or debit/credit card. For the online purchaser, the selection generally is using a debit/credit card, sometimes using a system such as PayPal or E-Gold, or sending payment through the mail.

In both retail store and ecommerce business, if the customer selects a credit card, debit card or other cash card, the next step in the authorization process is to enter the credit card information into the Merchant Service Provider’s point of sale terminal, automated response unit, or payment gateway. In a retail store, the clerk will usually ask the customer for the card in order to swipe the card or to key in the identification information. If it is a debit card, the customer must enter the pin number in order to complete the authorization process. Then, the customer must sign the transaction slip which is printed out

With an online transaction, the customer is directed to a secure web page within the ecommerce site in order to enter their credit card information. The debit or credit card information is sent from the point of sale terminal or the automated response unit to the merchant service provider account where the transaction is either accepted or denied. A payment gateway is used almost solely for online processing.

If the transaction is verified as being legitimate and the transaction amount is available in the customer’s account, the transaction can continue. If the transaction is not verified, the customer has a chance to use another payment method if it is a retail store location. With an ecommerce business, the same opportunity to choose another payment method exists, but the customer may also simply have keyed in something wrong during the process. If the transaction is not able to be verified, and there is no alternative payment method available, the sale cannot be completed.

If the transaction is verified, the first part of the transaction is completed. In this instance, what has happened is that the merchant account provider has been notified that there is a potential charge coming through the system and funds should be reserved from the customer’s bank account or credit card company. This prevents a customer from making several purchases close together in time which would run the bank account into an overdraft position or a credit card over the limit.

The second part of the transaction process is the actual running of the charge. Usually daily, but occasionally in real-time, transactions are batched and sent to the merchant service provider. The MSP in turn batches transactions by the issuing bank and forwards them to the customer’s bank. This is all done digitally. Once the transaction amount has come from the sale through to the customer’s bank or credit card provider, the process is complete.