Online Credit Card Processing - Uncovering The Mystique Behind It?
Most of us use credit cards to purchase items from e-commerce stores as well as brick-and-mortar retail shops
. In spite of using cards so frequently, not many of us are aware of how credit card processing happens and the elements that come into play in the transfer of funds from their account to the merchant's account. In this article, we explain the payment flow for internet transactions.Credit card processing involves a series of transactions. Let's look at what these are:
* Preauth transactions: In a preauth, the validity of the card is established. The charge for running this transaction is usually around one dollar.
* Postauth transactions: This is where clients place an order that will not be shipped to her immediately. At the time of order, a hold is put on the client's card. The business owner runs a postauth to complete the transaction and move the money once goods are shipped. This also removes the hold placed earlier.
* Credit transaction: This is the transfer of monies from the business account to the customer's. This is required when a business issues credit for returned items etc.
* Sales transaction: Here the purchaser buys an item and makes a payment with the credit card - to shift funds from her own account to the merchant's .
* Chargeback transaction: Chargebacks are instances where a client disclaims a charge made to her card. In such an instance, the bank will transfer the sum from the merchant's account and places it in the customer's account till the matter is resolved. The business gets some days to prove their case. If they provide sufficient evidence to support their claim, the sum is moved back to the merchant. Chargebacks proves costly to the business as a fee is charged by the bank for processing it.
Prerequisites for accepting internet based credit card payments
You should have the framework to manage credit card transactions on your business website. Some of these basic requirements are:
* a "card not present" merchant account
* a gateway account at AuthorizeNet, CyberSource, WorldPay, etc.
* a "vital tear sheet" that needs to be presented to the gateway (provided by the bank)
* a relationship with credit card types such as American Express; this knowledge must be conveyed to the gateway
* a secure server that supports SSL encryption
How does the online credit card processing work?
Following is the stepwise description of how it works:
1. The client places an order by filling a form that gathers all the credit card details. On pressing the "submit button", the information is delivered to the server.
2. The server processes the information and is routed to the suitable application for credit card verification.
3. The software verifies the payment information entered by the buyer. If the particulars are validated, it forwards the information to the gateway for further checks.
4. The gateway checks the validity of the card and the availability of funds. Based on the result, it sends an "Accepted" or "Rejected" status back to the software. The gateway levies a fee for this service that can be a flat monthly rate or based on the number of transactions processed.
5. The gateway routes the transactions to chosen clearinghouses (selected by banks for specific types of credit cards) in groups.
6. The clearinghouse obtains transactions from a number of gateways, batches them for different banks and moves funds accordingly. Again, this service is charged a fee that is around 2%-5% of the sales transactions.
7. The clearinghouse moves payments from the customer's to the merchant's bank.
8. On receipt of the transaction, the merchant's bank transfers the dollars from the client's account to the merchant account. Again, the bank or card issuer will charge a set of fees for various related services - starting the merchant account, discount fee, monthly minimum fee, etc.
This article should give you some understanding of what goes on when you submit an online order form. As you can see, credit card processing isn't so puzzling after all. Yet, owing to the various steps involved in this process, merchants prefer to pay a credit processing company to take care of it. As payment processing rates have fallen substantially in the last few years, this option also proves more economical.
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