Merchant services are a must for any business looking to accept credit and debit card payments from their customers. How merchant services work can give a business all the necessary information to help in making decisions as to which provider to use and how to set up its systems efficiently. This article goes into detail about how merchant services work, explaining the different processes and components involved in making each transaction smooth.
Basics of Merchant Services
Primarily, merchant services are any kind of financial services that would help a business process card transactions. They are offered by MSPs or acquiring banks, acting in their capacity as intermediaries between the business, the customer’s bank, and card networks like Visa, MasterCard, and American Express.
Setting Up Merchant Services
The process initiates with a business applying for a merchant account with an MSP. Such an account may be thought of as a kind of bank account, allowing a business to accept card payments. Before accepting the application, the MSP evaluates the risk profile of the business in view of the nature of its dealings, turnover, volume of transactions, and personal credit history.
Payment Processing Workflow
After setting up the merchant account, the payment processing workflow itself consists of a few important steps, as mentioned above:
Authorization:
- Every transaction that is made by a customer via a credit or debit card is initiated with authorization.
- The information from the credit or debit card is gathered at a point-of-sale terminal or an online payment gateway.
- The details are then encrypted and transmitted successfully to the MSP, who further forwards this information to the card network.
Authentication and Approval:
- The card network routed the transaction to the customer’s bank (issuing bank) for checking card details and sufficiency of funds or availability of credit.
- The issuing bank approves the transaction or declines it and passes the response back via the card network to the MSP.
- The MSP further relays the message of approval or decline back to the business’s POS system or payment gateway.
Clearing and Settlement:
- Otherwise, if the transaction is approved, clearing and settlement ensue.
- At the end of the business day, the business submits a batch of the pre-authorized transactions to the MSP.
- MSP then submits the batch via the card networks to respective issuing banks.
- The latter remits the funds to the acquiring bank deducting the interchange fee.
- It is then deposited into the business’s merchant account by the acquiring bank, usually within a couple of days.
Fees and Charges
There are a lot of fees involved in merchant services. These may include:
- Transaction Fees: This is a percentage of the amount of every transaction. It typically falls between 1.5% and 3.5%.
- Monthly Fees: These are fixed fees for maintaining the merchant account and various other services.
- Interchange Fees: These are fees that the card networks set and are paid to the issuing banks.
- Chargeback Fees: These are charged whenever a customer raises a dispute on any transaction and demands a refund.
Security and Compliance
Security forms an important part of merchant services. MSP uses various security measures such as encryption and tokenization to protect card information during transmission. Businesses also have to adhere to the Payment Card Industry Data Security Standard (PCI DSS) for the protection of card information.
Integration of business operations
Advanced MSPs of the modern day offer integrated solutions extending beyond payment processing to inventory management, customer relationship management, sales analytics, and loyalty programs. Such integrations automate business operations, providing insight and creating an excellent customer experience.
This post was written by a professional by Exzact Business Solutions. TRANSPARENT | AFFORDABLE | SIMPLE best credit card payment processing companies St Petersburg fl, Websites, and Social Media Done Right. Exzact Business Solutions are on a mission to educate local businesses to ensure smiles, savings, and solutions. Exzact clients save an average of 30% on their processing alone. No Contracts, Free Equipment, Local Support, No Rate Increases, and More. Exzact Business Solutions goal is to educate the local business community in order to ensure smiles, savings and solutions. Exzact Business Solutions is an Independent Sales Organization with strategic partnerships dedicated to cultivating reliable and trustworthy relationships in the Payment Card Industry, allowing to tailor products and services to the needs of each merchant. Contact EBS and see what a difference having the right advocate can make!