Credit Cards Processing Methods

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 or the credit card information is manually entered into a credit card terminal, a computer or website.

- 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. A credit card terminal is a dedicated piece of equipment that only processes credit cards although it is common for related transactions including gift cards and check verification to also be performed. A credit card terminal typically must be plugged in to a power supply and connected to a telephone line.

- 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.

- Level 2 or Level 3 Processing - Purchasing Cards

Visa and Mastercard have created a specialized type of credit card used primarily by government agencies and businesses. Increasingly, corporations and government agencies are relying on this form of payment to compensate their service providers and suppliers. Businesses benefit by receiving their funds quickly and by winning competitive bids and government contracts where purchasing cards are the required form of payment. The downside, however, is the increased costs associated with receiving these payments. These costs will usually be much higher than accepting a standard consumer credit card.

- Merchant Account Marketing

Merchant accounts are marketed to merchants by two basic methods: either directly by the processor or sponsoring bank, or by an authorized agent for the bank and additionally directly registered with both Visa and MasterCard as an ISO/MSP (Independent Selling Organization / Member Service Provider). Marketing details are by card issuers like Visa and MasterCard, and are enforced by various rules and fines.

- Marketing by Banks

A bank that has a merchant processing relationship with Visa and Mastercard, also known as a member bank, can issue merchant accounts directly to merchants. To reduce risk, some banks limit approval to merchants in its geographical area, those with a physical retail storefront, or those that have been in business for 2 years or more.

- Marketing by Independent Sales Organization (ISO)/MSPs

To market merchant accounts, an ISO/MSP must be sponsored by a member bank. This sponsorship requires that the bank verify the financial stability and suitability of the company that will be marketing on its behalf. The ISO/MSP must also pay a fee to be registered with Visa and Mastercard and must comply with regulations in how they may market merchant accounts and the use of copyrights of Visa and Mastercard. One way to verify if an ISO/MSP is in compliance is to check a website or any other marketing material for a disclosure "company is a registered ISO/MSP of bank, town, state. FDIC insured". This disclosure is required by both Visa and Mastercard and will cause a fine of up to $25,000 if it is not clearly visible. In almost all cases, if there is no disclosure, the company is likely to be an uninformed 4th party or worse. In many cases unregistered operators have been responsible for some of the worst horror stories from merchants.

References:

http://en.wikipedia.org/wiki/Merchant_account#Methods_of_processing_credit_cards

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For more information on Credit Card Processing Equipment, Terminals, Machines & Software you can visit: http://www.paynetsystems.com/html/equipment_list.htm