Online Credit Card Processing - How to Accept Credit Cards - Ecommerce 101


Back in 1998 (through 2000 or so), I worked for a small company (called PaymentNet / then Signio) that handled online transactions. Verisign later purchased this company, and the product team I led integrated the "client" - the portion that took the credit card information and sent it to our servers for processing. The product name is Payflow Pro - maybe you've heard of it?

I'm going to limit this discussion to Visa / MasterCard credit cards -- Amex and others operate slightly differently.

First, there is the bank that the consumer's credit card is attached to. That bank is called the "acquiring institution" ... it handles the "credit" you have on your credit card.

Then, there is the merchant bank. That's where the business opens up a "merchant account" to be able to accept various forms of credit cards.

The merchant account is connected to another company called a "processor". This "hidden" layer is the company that actually moves the funds from the acquiring institution to the merchant account (that process is called "settlement"). The processor also handles talking to the acquiring institution to make sure that the customer has the funds available (a process known as authorization).

Some well-known credit card processors are First Data Merchant Services (FDMS), Nova and PaymentTech.

Sitting on top of the processor is one of two primary systems either a swipe-card terminal (like those you see in Wal-Mart) or a "gateway" company that does basically the same thing, but over the Internet - that's what Verisign Payment Services and Authorize.Net do.

Note that the waters are even muddier in many cases, for example, Wells Fargo can act as every piece of the puzzle in some circumstances.

So, what actually happens when you purchase something at Wal-Mart using a credit card?

a) You place your items from your "basket" onto the counter and scan them. the checkout system provides a total.

b) You swipe your card through a "terminal", which reads the # off the magnetic stripe.

c) Wal-Mart dials their processor, and asks if you have the funds available on your credit card. The processor talks to your bank (the acquiring institution). If funds are available on the card, they are marked as "held" in your account (an authorization) - if not, the transaction is declined (yuk). Authorizations that are never settled tie up your credit card funds for a period of time, usually 10 days or so.

d) At the end of the day, Wal-Mart marks all the transactions they want to receive funds for, and submits them to their processor in a "batch". The processor then contacts the acquiring institutions and transfers the funds to your merchant bank - which may make the funds available instantly (in a day or two), or may hold them for a while, or may hold the funds in a "rolling reserve" (keeping some funds held back in case a consumer fights the transaction, called a chargeback).

In the online world, replace the cash-register with an online shopping cart, and the electronic credit-card with terminal with called a "gateway" such as Payflow or Authorize.Net. the process is basically the same, with slightly more complexity.

Be careful going "a-la-carte" with ecommerce credit-card services: if the gateway you chose can't talk to the processor your bank uses, or your software can't talk to the gateway, you're hosed. That situation was MUCH more common (things not working together) back in the mid/late 90's than it is today. However, most "brick and mortar" banks (like your local branch) still don't have a clue about online credit-card processing ? if they attempt to sell you a "leased terminal", it's best to run the other way and find a solution from reputable online source.

As an online merchant looking to accept credit cards, all you really need to know is that all services purchased through a single solution will usually work together seemlessly.


More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More E-Commerce Information:

Related Articles

Chinas IT Industry to Maintain Fast Growth
China's IT industry is expected to see a sales revenue of 2.68 trillion yuan (US$322.
7 Must Have Scripts to Look for When Shopping for E-commerce Hosting
When shopping for e-commerce hosting there are a lot of things you need to keep and mind. When you know what to look for it is a lot easier to ensure you get exactly what you need and not leave any important information out.
Dont Get Ripped Off Getting A Merchant Account
Far too many people get ripped off when setting up a merchant account for their online business. The biggest reason is that they don't understand their options and are intimidated by the whole process.
The Secret Science Of Online Shopping
In theory you could create a retail web site with a limitless selection; an online store where every kind of merchandise known to man could be sold. Would people be interested in buying from such a huge enterprise?Why do people buy online?Location: You can shop online from almost anywhere as long as you have access to a power supply and a telephone connection.
Your Site is all Direct Marketing
This may not be a popular view, but I think writing a web site is very similar to writing a piece of direct mail. I'm not talking about smash-and-grab fliers.
The Check is in the E-mail
Have you ever had someone who owed your business money say, "the check is in the mail." Well now there is an answer to that old tired way of brushing you off and not seeing that check come in the mail week after week after week.
Retirement Signature Frames - The Perfect Retirement Gift!
When most people think of a retirement gift, they think of a watch. It's the tried and true gift that companies give employees to say thanks for all the years of hard work.
Do You Need A Merchant Account?
Deciding when to get your own merchant account for internet sales can be a confusing and expensive venture. If you have a small to medium sized business and only sell a small amount of products then having your own merchant account may not be the answer for you.
eCommerce, How Much Does It cost?
Making profits with your existing website design or creating a new online store can be exciting, affordable and most of all; rewarding. Mmmm .
What Does It Take to Make Money Online?
What a loaded question! Let's narrow that down a bit and take it from the perspective of someone who wants to work from home and make money online in a home business. That will make it an easier question to answer.
How Measuring Key Performance Indicators Can Improve E-Commerce Strategy - Part One
The problem with most e-commerce marketing strategy today is that companies don't understand how they use things like web analytics. Most e-commerce directors or web marketers are given a budget and told to stick to it, and good analytics don't usually come cheap.
Mr and Mrs Smith Go Online, as Internet Technology Moves from Fantasy to Normality
According to NOP World, 48% of all Internet users have researched or purchased financial products such as insurance and loans on the internet, or used online banking facilities. In April, NOP World had already recorded estimates of 28 million people online in Great Britain, with 13.
Excuse Me, Are You Wasting Traffic?
The largest cost and concern of an internet business is customer acquisition; traffic. Both quantity and quality of traffic directly determines the succes of an internet business.
How Merchant Accounts Can Save You Money
We all know that accepting credit cards is the key to online sales. Unfortunately, most merchants are unaware that acquiring a merchant account can actually save them money.
Your Affiliate Web Site Is Built - Now What?
When I first got my web site built, I thought I finally hada presence on-line. Wrong! I soon found out that I needed someone to host my site, and I needed a domain name.
Say Something Worth Talking About
I recently published a short e-book called 'One Thing I Know About Doing Business Online'. Seventeen people contributed - including Seth Godin, Jeffrey Zelman, Danny Sullivan, Jared Spool, Gerry McGovern and Ann Handley.
Evaluating Vendors of Ecommerce Fulfillment Services
Once your website has secured an order, you have to fulfill it. While the fulfillment of digital goods is usually handled online, the delivery of physical goods is handled in a "brick-and-mortar" world.
Is Your Business Afraid of the Internet?
My Business is Afraid of the InternetBill Gates, CEO of Microsoft, once said that there would soon be two types of businesses, those online, and those out of business. Those words still ring true today, and many small businesses are missing a huge boat by not getting online.
How To Eliminate Credit Card Refunds From Digital Thieves
Can you encounter the number of times where a Credit Card Sale was generated, only to receive a "Refund Notification" from your contracted e-commerce processor on behalf the "customer"?Welcome to the electronic world of "cyber-shoplifting".Unscrupulous surfers, disguised as potential "customers", systematically opt to ordering goods (using credit cards) in electronic form of delivery, only to request a refund minutes or days later after receiving the product.
Ecommerce - Boost Your Business ROI
Did you know that over 90% of all online orders are processed by credit cards and that web sites that offer customers the ability to pay with credit cards can achieve up to 300% more sales than those that do not?It's a fact. Not only do more customers buy, statistics prove that customers actually buy more when given the option to pay with their credit card.