MERCHANT SERVICES CREDIT CARD PROCESSING
Merchant services is a category of financial services in the United States that is used by businesses. Merchant services are authorized financial services that allow a business to accept credit card or bank debit card transactions using online ordering or point of sales systems. To use merchant services, a US-business must obtain a merchant account to accept customer credit card and electronic payments through an electronic commerce Web site. A commonly associated term is Merchant Service Provider (MSP)the name used to describe a company or organization that will provide transaction processing solutions to merchants.
A merchant account is a type of bank account that allows businesses to accept payments in multiple ways, 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.
Methods of processing credit cards 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 (an “EMV”), 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.
Credit card terminal
A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key-enter a credit card’s information as well as additional information required to process a credit card transaction. They may be connected to Point of Sale systems and typically have a keypad and network connection and may have a built-in printer.
Automated response unit (ARU)
An ARU (also known as a voice authorization, capture and deposit) allows the manual keyed entry and subsequent authorization of a credit card over a cellular or land-line telephone. With this method, a merchant typically imprints their customer’s card with an imprinter to create a customer receipt and merchant copy, then process the transaction instantaneously over the phone.
Payment gateway
A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is the equivalent of a physical POS (point-of-sale) terminal located in most retail outlets. A merchant account provider is typically a separate company from the payment gateway. Some merchant account providers have their own payment gateways but the majority of companies use 3rd party payment gateways. The gateway usually has 2 components: a) the virtual terminal that can allow for a merchant to securely login and key in credit card numbers or b) have the website’s shopping-cart connect to the gateway via an API to allow for real time processing from the merchant’s website.
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 and MasterCard 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.