Authorization

1. Your customer presents their credit card (or the card number, expiration date and security code) to you or your employee.

2. You swipe the card or key in the credit card data using either a credit card terminal, a POS system communicating over the Internet or. If this is an online transaction, a payment gateway will capture that data.  Irregardless of the method, the data is sent to the merchant account provider.

3. The merchant account provider communicates the card information to the VISA or MasterCard network.  Usually this is done via an intermediary, a larger Payment Processor.  In our case this is usually First Data or TSYS.

4. MasterCard or VISA asks the cardholder’s bank (issuing bank) if the funds are available.  If the funds are available, the transaction will be authorized and the funds will be placed on hold in the customer’s credit or debit card account.

5. The issuing bank informs MasterCard or VISA of the result of the authorization attempt (either authorized or declined).

6. MasterCard or VISA communicate the results of the authorization attempt back to the merchant account provider.

7. You receive the results of the authorization attempt.  If the authorization was successful you provide the goods or services to the customer they just paid for.

Settlement

8.  At the end of the day you “batch out” the day’s transactions to the merchant account provider.  If you are using an Online Gateway or an IP-based terminal the batching is most likely happening automatically.  If you’re not set up this way you might want to request “auto batching” from your current merchant account provider. If you are using an older dial-up terminal may have to hit a special button to initiate this process but “auto-batching” should still be available to you.

9. The merchant account provider sends the results to MasterCard or Visa.

10. The Issuing bank adds the transaction amount to the cardholder’s bill and you no longer need to be concerned about whether your client pays their credit card bill or not. Of course there are the issues of chargebacks or a refund that could pop up later.  Bottom line: collecting the transaction amount from your customer is the issuing bank’s job.

14. The Issuing bank transfers the money to the Merchant Account Provider, using an ACH (Automated Clearing House) transfer.

15. Your Merchant Account Provider deposits the proceeds into your business checking account.

And so goes the journey of a credit card transaction.  Believe it or not, there is more detail I could have added above.  However, the list above give a good simplified view of the whole process.  Questions?  Leave a comment below and I will answer you back or drop me an e-mail.

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• Where do Processing Fees Come From? Pt. 2
• Who Get’s Your Merchant Account Fees?
• Interchange Compliance – Guidelines

Many merchants believe that adding a cardholder’s three or four digit CVV2 code for a “card not present” (CNP) transaction will help qualify the transaction for a lower discount rate. However that is not the case; the CVV2 code is only valuable to protect against credit card fraud and has nothing to do with rate qualification.

CVV2 stands for Card Verification Value and was introduced by MasterCard in 1997 and Visa in 2001. For ‘swiped’ transactions, the value is referred to as CVV1. Each of the card brands has its own acronym:

• Visa: CVV2 – Card Verification Value
• MasterCard: CVC2 – Card Validation Code
• American Express: CID – Unique Card Code (and 4 digits)
• Discover: CID – Card Identification Number

Merchants are able to configure payment processing systems, like payment gateways and Point of Sale software, to accept or decline transaction requests based upon the match or mismatch of CVV2 information. For example, if a merchant creates a rule to decline all transactions where the CVV2 value does not match, the authorization request could be successful with the issuing bank, but the transaction will be denied by the merchant. Even though the transaction was denied by the merchant, the consumer’s card will still be authorized.

One thing to know about this code is that PCI DSS compliance prohibits merchants from storing the CVV2 code. For recurring billing, merchants can accept and validate the CVV2 value during the initial authorization but cannot store it for additional transactions. This should not be problem since after the initial validation, there really is no value in storing this code.

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• Video: It’s Time to go Interchange Plus! (October Rates Changes)

First lets start by defining Interchange . Interchange is the set discount rates from Visa and MasterCard for various types of businesses and credit card transactions. These rates represent the cost of the service a merchant account provider has and that cost is the same all providers. Click the links below to see what these rates look like:

Visa Interchange Rates

MasterCard Interchange Rates

Interchange Plus Defined

Simply put, Interchange Plus is the Interchange rates plus a margin for the merchant account provider. The margin will be expressed as either a discount rate, such as .35%, and/or a transaction fee, such as $.15 a transaction.

What Are the Advantages of Interchange Plus?

There are two reasons to go with this pricing model for your merchant account:

Simplified Pricing

First, it strips away the ability to hide fees in the "mid-qual" and "non-qual" categories. This allows you to shop around and compare "apples to apples" rates. So if you were to call three merchant account providers you could say, "I want Interchange Plus pricing, what is your margin?" The answer you would receive will depend on your volume but would go something like this, ".50% and $.10per transaction." If the next company you call tells you they will give you .35% and no transaction fee, you would clearly know who had the better pricing.

Rebates on Credits

The second reason to go with this model is to receive a refund on all credits your business issues. With a normal merchant account you are charged on the gross amount of credit card transactions. If you have $10,000 in credits you still pay the full discount rate on those credits. With interchange Plus you are charged on your net amount of sales. In other words, when you issue a credit you receive a rebate for close to the full discount amount you paid when the transaction originally went through.

A good example of how this benefits a business is with a hotel client of mine. Often their clients would reserve a room with one credit card and then pay with another. As a result they were issuing over 50 credits equaling over $10,000 a month. When I set them up with Interchange plus they saved $263.80 a month just by receiving rebates on all the credits they issued.

Get Interchange Plus for your Business

If this type of merchant account sounds interesting to you contact me and I will show you how this type of account can benefit your company’s bottom line.

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