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How Online Credit Card Processing Works

Aug 28, 2008
You don't have to know how credit card processing works online in order to operate a successful business. There are many merchants who process thousands of dollars in transactions each month without knowing what is happening behind the scenes. That being said, having a rudimentary understanding of how money travels from your customer's credit card account to your bank account can be useful. Below, we'll give you a brief overview that describes the entire process. We'll begin when someone visits your website and follow the trail of the transaction until your bank receives the money.

What Your Website's Visitors See

When your visitor arrives at your website, they'll be able to choose the products they wish to purchase. By clicking on the appropriate link, they're transported to a page on your website where they can enter their credit card information. The shopping cart that you're using should calculate any taxes or shipping fees. Once your customer has filled in the necessary fields (address, phone number, etc.), they can validate their purchase decision by clicking a "Submit Order" button.

Preventing Fraud At The Gateway

Before the transaction and the accompanying credit card information reach your merchant account's bank, they must go through a payment gateway. At the gateway, the transaction is checked to ensure its validity. This includes making certain that the credit card number is correct and verifying the address and CSV code (normally found on the back of the credit card) to prevent fraudulent activity. If the customer's credit card is deemed invalid, a message is sent back to your website to alert the customer. If the credit card is valid, the transaction continues to the merchant account.

On The Way To The Merchant Account

The payment gateway transfers the money for the transaction from the customer's credit card account to your merchant account's bank. You don't actually have possession of the money (yet). Once the money arrives at your merchant account's bank, it's held there.

Payment Notifications

If the transaction is completed without issue, a message is sent to your website that notifies the customer. This message confirms to your customer that her credit card was charged for the appropriate amount and the transaction was processed successfully. Most merchant accounts are set up to also send an email confirmation to the customer. From your perspective (as a merchant), you'll be able to see the new transaction payment immediately.

Into Your Bank Account

The last step in the process is to receive the money into your bank account. The money is currently held at your merchant account's bank. Assuming that your merchant account is in your name (or the name of your business), you'll receive the money within a few business days. It's transferred automatically according to the agreement you signed when you established your merchant account.

A Smooth Process

The credit card processing system initially seems complex, but each step is refined to minimize fraud while making the transaction flow as smoothly as possible. Your customers usually won't be aware of what is happening behind the scenes. The only thing they'll see is a confirmation that their transaction was processed or a message letting them know their credit card was declined. On your end, you may need to reconcile the payment data from your merchant account with your own database. But, that can usually be accomplished by a simple download once you've programmed your system to import and merge the information.

Credit card processing plays a critical role in your online store sales. You now have a broad understanding of how that process works.
About the Author
This article is brought to you by PaySimple, a leading provider of echeck processing services.
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