Ecommerce Credit Card Payment Processing - How Do They Do It?
http://www.webmarktools.net/articles/2196/1/Ecommerce-Credit-Card-Payment-Processing---How-Do-They-Do-It/Page1.html
Daljeet Sidhu
Daljeet Sidhu is Co-founder at TradeSeam. Read our shopping cart advice. Compare ecommerce quotes. Sellers JOIN for qualified sales lead. By Daljeet Sidhu
Published on 12/7/2010
Most of us use credit cards to purchase items from e-commerce stores and brick-and-mortar stores. In spite of using cards almost every day, very few of us are aware of how credit card processing happens. In this article, we explain the payment flow for internet transactions.
Credit cards are used by all of us today to when we shop at e-commerce websites and physical stores. However, not many people comprehend how credit card processing happens and the components that come into play in moving funds from their account to the merchant's account. Here, we will try and elaborate on the payment flow for online transactions.
Credit card processing involves multiple transactions. Let's look at them more closely:
* Preauth transactions: The validity of a card is established with this transaction. The rate levied for a preauth is usually around one dollar.
* Postauth transactions: This is where clients place an order that will not be shipped to her immediately. At the time of order, a hold is placed on the client's card. The merchant runs a postauth to transfer the funds after the order has been shipped. This also removes the hold placed earlier.
* Credit transaction: This is the transfer of monies from the merchant's account to the client's. This is needed when a business issues credit for returns etc.
* Sales transaction: Here the customer buys an item and uses the credit card to transfer money from her account to the merchant's .
* Chargeback transaction: Chargebacks are cases where a customer does not accept responsibility of a charge made to her credit card. In such cases, the bank will transfer the sum under question from the merchant's account and places it in the buyers account till the time the issue is settled. The business gets a few days to establish their case. If they can assure the bank with proof, the sum is moved back to the merchant. Chargebacks cost the merchant as banks levy a charge for the time and effort involved.
Prerequisites for accepting online credit card payments
You must have the framework to manage credit card transactions on your business website. Some of these basic requirements are:
* a "card not present" merchant account
* a gateway account at AuthorizeNet, CyberSource, WorldPay, etc.
* a "vital tear sheet" that needs to be presented to the gateway (provided by the bank)
* an association with credit card types such as American Express; this knowledge must be conveyed to the gateway
* an SSL enabled server
How does the website credit card processing work?
Following is the breakdown of how it all happens:
1. The buyer places an order by filling up a form that collects the credit card details. On pressing the "submit button", the details are sent to the server.
2. The server processes the information and is delivered to the suitable software program for credit card verification.
3. The function of the software is to verify the payment details provided by the client. If the information is validated, it transmits the information to the gateway for additional checks.
4. The gateway checks the validity of the card and the availability of funds. Based on the outcome, it sends an "Accepted" or "Rejected" message back to the software application. The gateway levies a fee for this service that can be a fixed monthly rate or a per transaction rate.
5. The gateway routes the transactions to intended clearinghouses (chosen by the bank for a credit card type) in batches.
6. The clearinghouse receives transactions from many gateways, batches them for various banks and moves funds accordingly. This services too is charged a fee that ranges between 2%-5% of the cumulative sale.
7. The clearinghouse transmits funds from the customer's bank to the merchant's bank.
8. Once the merchant' bank receives the processed transaction, it transfers the cash from the buyer's account to the merchant account. This too comes at a price as the bank or card issuer will charge some fees for a variety of relevant services - setting up the merchant account, discount rate, monthly fee, etc.
This article should give you some understanding of what goes on when you submit an online order form. As illustrated, credit card processing isn't so confounding after all. However, because of the multiple steps involved in this process, businesses are more comfortable paying a credit processing company to take care of it. As payment processing rates have fallen substantially in the last few years, this choice also proves more economical.
Credit card processing involves multiple transactions. Let's look at them more closely:
* Preauth transactions: The validity of a card is established with this transaction. The rate levied for a preauth is usually around one dollar.
* Postauth transactions: This is where clients place an order that will not be shipped to her immediately. At the time of order, a hold is placed on the client's card. The merchant runs a postauth to transfer the funds after the order has been shipped. This also removes the hold placed earlier.
* Credit transaction: This is the transfer of monies from the merchant's account to the client's. This is needed when a business issues credit for returns etc.
* Sales transaction: Here the customer buys an item and uses the credit card to transfer money from her account to the merchant's .
* Chargeback transaction: Chargebacks are cases where a customer does not accept responsibility of a charge made to her credit card. In such cases, the bank will transfer the sum under question from the merchant's account and places it in the buyers account till the time the issue is settled. The business gets a few days to establish their case. If they can assure the bank with proof, the sum is moved back to the merchant. Chargebacks cost the merchant as banks levy a charge for the time and effort involved.
Prerequisites for accepting online credit card payments
You must have the framework to manage credit card transactions on your business website. Some of these basic requirements are:
* a "card not present" merchant account
* a gateway account at AuthorizeNet, CyberSource, WorldPay, etc.
* a "vital tear sheet" that needs to be presented to the gateway (provided by the bank)
* an association with credit card types such as American Express; this knowledge must be conveyed to the gateway
* an SSL enabled server
How does the website credit card processing work?
Following is the breakdown of how it all happens:
1. The buyer places an order by filling up a form that collects the credit card details. On pressing the "submit button", the details are sent to the server.
2. The server processes the information and is delivered to the suitable software program for credit card verification.
3. The function of the software is to verify the payment details provided by the client. If the information is validated, it transmits the information to the gateway for additional checks.
4. The gateway checks the validity of the card and the availability of funds. Based on the outcome, it sends an "Accepted" or "Rejected" message back to the software application. The gateway levies a fee for this service that can be a fixed monthly rate or a per transaction rate.
5. The gateway routes the transactions to intended clearinghouses (chosen by the bank for a credit card type) in batches.
6. The clearinghouse receives transactions from many gateways, batches them for various banks and moves funds accordingly. This services too is charged a fee that ranges between 2%-5% of the cumulative sale.
7. The clearinghouse transmits funds from the customer's bank to the merchant's bank.
8. Once the merchant' bank receives the processed transaction, it transfers the cash from the buyer's account to the merchant account. This too comes at a price as the bank or card issuer will charge some fees for a variety of relevant services - setting up the merchant account, discount rate, monthly fee, etc.
This article should give you some understanding of what goes on when you submit an online order form. As illustrated, credit card processing isn't so confounding after all. However, because of the multiple steps involved in this process, businesses are more comfortable paying a credit processing company to take care of it. As payment processing rates have fallen substantially in the last few years, this choice also proves more economical.