Credit Card Merchant Accounts and How They Work

Business works fast these days and it seems that credit card use is making it even faster. More people throw down plastic in place of cash than they ever have before. Credit and debit transactions are the most popular forms of payment. In fact, most people carry less than $20 cash in their purse or wallets at any given time. Gone are the days where cash is readily given at registers and most customers prefer to use plastic.  If you are part of a company that is not yet accepting credit cards you could be missing out on a huge customer base.

If you are going to accept cards, you will need to have access to any number of credit card merchant accounts. At a basic level, credit card merchant accounts simply allow businesses to accept payments through credit or debit. It is a type of bank account that only credit transactions go through. In addition to having credit card merchant accounts, a company will also need card readers. Card readers themselves can come in several types from the typical swipe cards you see in retail stores to small devices that can attach to an iPhone or other smart device.

The first step in how credit card merchant accounts work is by actually swiping or scanning the credit card. The credit card terminal will send the information from the card to the credit network for processing. This is through a host machine, not actually through the issuing credit card brand. The account is checked to make sure it is open and valid then the transaction will go through. This process happens in a matter of seconds.

Once the payment is accepted, the issuing bank forwards the payment to credit card merchant accounts. Though the actual accepting and validity of the purchase is done in less than a minute, the transfer of funds to credit card merchant accounts from the issuing bank can take anywhere from 24 to 72 hours as additional processes are happening. Usually transactions are only forwarded once per day, for instance, so as a merchant, if you accepted payment via credit card, you may not actually see it for a few days. Once the money is safely in your merchant account, it is yours for the taking.

There are fees associated with the use of a merchant account and you will have to pay fees each time a customer uses their credit card. Usually these are small fees, a few dollars for instance, but that can certainly add up. Some companies, for instance, will only accept credit cards for transactions over $10 for instance.  This is an attempt to get partially around these fees. For example, if a customer paid for a purchase of $2.00 on their credit card, you, as the merchant, would probably get little to no money back on this. Though fees are a fact of life with merchant accounts, you will likely find that paying the fees is made up completely by the increase in profits you will see when you start taking plastic.