List of credit card processing companies that offer merchant accounts:
A payment gateway is an e-commerce application service provider service that authorizes credit card payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar.
It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways protect credit card details by encrypting sensitive information, such as credit card numbers, to ensure that information is passed securely between the customer and the merchant and also between merchant and the payment processor.
A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone or interactive voice response service) and the Front End Processor or acquiring bank.
Typical transaction process
When a customer orders a product from a payment gateway-enabled merchant, the payment gateway performs a variety of tasks to process the transaction.
- A customer places order on website by pressing the 'Submit Order' or equivalent button, or perhaps enters their card details using an automatic phone answering service.
- If the order is via a website, the customer's web browser encrypts the information to be sent between the browser and the merchant's webserver. In between other methods, this may be done via SSL (Secure Socket Layer) encryption. The payment gateway may allow transaction data to be sent directly from the customer's browser to the gateway, bypassing the merchant's systems. This reduces the merchant's Payment Card Industry Data Security Standard (PCI DSS) compliance obligations without redirecting the customer away from the website.
- The merchant then forwards the transaction details to their payment gateway. This is another (SSL) encrypted connection to the payment server hosted by the payment gateway.
- The payment gateway forwards the transaction information to the payment processor used by the merchant's acquiring bank.
- The payment processor forwards the transaction information to the card association (e.g., Visa/MasterCard/American Express). If an American Express or Discover Card was used, then the card association also acts as the issuing bank and directly provides a response of approved or declined to the payment gateway. Otherwise [e.g.: a MasterCard or Visa card was used], the card association routes the transaction to the correct card issuing bank.
- The credit card issuing bank receives the authorization request and credit or debit checks and then sends a response back to the processor (via the same process as the request for authorization) with a response code [e.g.: approved, denied]. In addition to communicating the fate of the authorization request, the response code is used to define the reason why the transaction failed (such as insufficient funds, or bank link not available). Meanwhile, the credit card issuer holds an authorization associated with that merchant and consumer for the approved amount. This can impact the consumer's ability to further spend (e.g.: because it reduces the line of credit available or because it puts a hold on a portion of the funds in a debit account).
- The processor forwards the authorization response to the payment gateway
- The payment gateway receives the response, and forwards it on to the website (or whatever interface was used to process the payment) where it is interpreted as a relevant response then relayed back to the merchant and cardholder. This is known as the Authorization or "Auth"
- The entire process typically takes 2–3 seconds.
- The merchant then fulfills the order and the above process is repeated but this time to "Clear" the authorization by consummating the transaction. Typically, the "Clear" is initiated only after the merchant has fulfilled the transaction (e.g.: shipped the order). This results in the issuing bank 'clearing' the 'auth' (i.e.: moves auth-hold to a debit) and prepares them to settle with the merchant acquiring bank.
- The merchant submits all their approved authorizations, in a "batch" (e.g.: end of day), to their acquiring bank for settlement via its processor.
- The acquiring bank makes the batch settlement request of the credit card issuer.
- The credit card issuer makes a settlement payment to the acquiring bank (e.g.: the next day)
- The acquiring bank subsequently deposits the total of the approved funds into the merchant's nominated account (e.g.: the day after). This could be an account with the acquiring bank if the merchant does their banking with the same bank, or an account with another bank.
- The entire process from authorization to settlement to funding typically takes 3 days.
Many payment gateways also provide tools to automatically screen orders for fraud and calculate tax in real time prior to the authorization request being sent to the processor. Tools to detect fraud include geolocation, velocity pattern analysis, OFAC list lookups, 'black-list' lookups, delivery address verification, computer finger printing technology, identity morphing detection, and basic AVS checks.
A merchant account is a type of bank account that allows businesses to accept payments by payment cards, typically debit or credit cards. A merchant account is established under an agreement between an acceptor and a merchant acquiring bank for the settlement of payment card transactions. In some cases a payment processor, independent sales organization (ISO), or member service provider (MSP) is also a party to the merchant agreement. Whether a merchant enters into a merchant agreement directly with an acquiring bank or through an aggregator, the agreement contractually binds the merchant to obey the operating regulations established by the card associations.
Today a majority of credit card transactions are sent electronically to merchant processing banks for authorization, capture and deposit. Various methods exist for presenting a credit card sale to "the system." In all circumstances either the entire magnetic strip is read by a swipe through a credit card terminal/reader, a computer chip is read, or the credit card information is manually entered into a credit card terminal, a computer or website. The earliest methods, submitting credit card slips to a merchant processing bank by mail, or by accessing an Automated Response Unit (ARU) by telephone, are still in use today but have long been overshadowed by electronic devices. These early methods used two-part forms and a manual device for mechanically imprinting the embossed card number information onto the forms.
The Durbin Amendment
On October 1, 2011, new rules, resulting from the Durbin Amendment, went into effect that lower the debit card interchange fees the Visa and MasterCard networks charge merchants. The new rules apply only to debit cards issued by banks with more than $10 billion in total assets.
Prior to the implementation of the Durbin Amendment, the swipe fee for a debit card transaction averaged 44 cents. Under Durbin, the Federal Reserve has set a cap of .05% + 21 cents per transaction (22 cents if the card has security features).
Terms to know
Following are some useful definitions that pertain to pricing merchant transactions:
Basis Point: 1/100 of a percentage point. The term is used to describe discount rates, which are the bulk of card processing fees paid by merchants.
Discount Rate: includes fees, dues, assessments, markups and network charges merchants must pay for accepting credit and debit cards. Interchange is the discount rate's largest component.
Interchange: the fee paid to the card issuing bank by the card acquiring bank by way of the card brands. Interchange rates vary widely based on card type, transaction amount, risks and retail sector. Interchange is assessed on all Visa Inc.- and MasterCard Worldwide-branded credit and debit cards.
Mid-Qualified: the percentage rate merchants are charged when accepting credit cards that do not meet qualified rate requirements. Also known as a partially qualified, the mid-qualified rate applies in such cases as when cards are keyed into terminals instead of swiped or if the cards are of a special type such as rewards cards.
Non-Qualified: often the highest percentage rate merchants are charged for accepting credit cards. In most cases, transactions that are neither qualified nor mid-qualified fall into this category. The bulk of these transactions are done with corporate cards.
Qualified: the percentage rate merchants are charged when they accept regular consumer credit cards and process them with an approved processing solution in a manner defined as standard by their merchant account providers. Qualified is typically the lowest rate merchants incur when accepting credit cards.
Visa Interchange Visa Interchange rate table.
MasterCard Merchant Rules PDF guidelines for all businesses that accept MasterCard credit cards.
Visa USA - Accepting Visa Guide and information for accepting Visa and other credit cards.
PCI SCC Reference Document PCI SSC Quick Guide.
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