How Merchant Accounts Work
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started FeeFighters.
This is a brief description of how credit card processing works. Credit card processing has two parts: Authorization and Settlement:
Authorization
Settlement
9. At the end of the day the Merchant sends the day’s “batch” of transactions to the Merchant Account Provider. If the merchant is using an Online Gateway or an IP-based terminal the batching is probably done automatically and is never really noticed by the merchant. If using an older dialup terminal the merchant probably has to hit a special button to initiate this process.
10-12. The merchant account provider sends the results to Visa / Mastercard
13. The Issuing bank adds the amount to the cardholder’s bill – the merchant no longer concerns themselves with the cardholder, unless there is a Chargeback or a Refund, because they will get paid no matter what. Collecting from the cardholder is the Issuing Bank’s responsibility.
14. The Issuing bank transfers the money to the Merchant Account Provider, using an ACH (Automated Clearing House) transfer.
15. Your Merchant Account Provider deposits (again using ACH) the proceeds into your business checking account.
