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Merchant Accounts
   
It's really quite simple. The customer wants to make a purchase with a Merchant (M) who has entered an agreement with a Merchant Bank (MB) to accept credit cards. The Merchant Bank though actually contracts with an Acquiring Processor (AP) to route the transaction. The merchant's service contact however is not with the Acquiring Processor directly or the Merchant Bank but the Merchant Service Provider (MSP) who really is an Independent Sales Organization (ISO). The ISO however does not want to be called an ISO and prefers to be called a Non-Cash Transaction Provider (NCTP). The NCTP also routes the transaction data to the Acquiring Processor and may or may not take the chargeback risk depending on what they have worked out with the ISO, the Acquiring Processor (AP) and the MSP (who can really be themselves) So... the M has a problem and calls the ISO who calls the MSP home office who checks with the AP. The AP calls the Issuing Bank (they get most of the money) who blames the ISO for the problem. The ISO blames the MP who blames the AP. It all, of course, ends up being YOUR fault. Simple, huh? There can be as many as six parties participating in every credit card transaction.

The Issuing Bank - The issuing bank extends a credit card account to a customer after verifying the applicant's creditworthiness and "issues" the consumer a credit card (bankcard). The merchant's payment will eventually come from this bank. The Issuing Bank who gave (issued) the consumer a credit card actually ends up with a good part of the discount fee that the Merchant pays for the privilege of accepting credit cards. See "Interchange Fee" in the Glossary. This is why we get calls during our dinner hour to sell us another consumer credit card.

The Consumer - The consumer makes the purchase by presenting their credit card at the Merchant location. They use a bankcard (credit card) from an issuing bank and provide this information to the Merchant by the Merchant swiping the card on a credit card terminal, or in the case of a phone / mail order by the Merchant keying the transaction.

The Merchant - The Merchant offers goods or services for sale. A Merchant needs both a Merchant Account (which means they have been approved for the chargeback risk) and a method of communicating the credit card information with a credit card terminal, PC based software, or internet based software.The days of taking batched credit card slips to your bank are essentially over.

The Merchant Bank - The merchant bank provides merchants with an online Merchant Account (to accept "card present" transactions with a terminal or "card not present" transactions). This bank may contract with an Acquiring Processor to move the credit card transaction through the payment process, or it may function in this capacity itself. The Merchant Bank and the Acquiring Processor may also contract with an Independent Sales Organization (ISO) to find the Merchant in exchange for a part of the processing fees.

ISO (Independent Service Organization) - An ISO is a firm or organization which solicits offers to process non-cash and credit card transactions, usually in exchange for transaction fees or a percentage of sales.

The Acquiring Processor - The Acquiring Processor routes the transaction through the electronic financial networks for processing and settlement, delivering the payment to the merchant's online account once it has been obtained from the credit-card holder's account with the issuing bank.

(For a complete listing of all the terms relevant to the Merchant Account Industry including internet terms go to the Glossary of this Guide.)

ABOUT THIS GUIDE
About the Author
A Word About Our Membership Community
Frank Merchant knows how to get the best price
The Internet Marketplace
   
UNDERSTANDING IT ALL
What are the advantages (and disadvantages) of accepting credit cards for your business?
6 Benefits of Accepting Credit Cards
Disadvantages of Accepting Credit and Debit Cards
Who are the players? How does the money get in your bank account?
Credit Card Transactions Step By Step
Should I go visit my banker for my merchant account?
How can I tell if I will get good customer service?
Be on the Lookout for Deceptive Sales Practices
How to Avoid Your Money Being Held By Your Non-Cash Transaction Processing Company
Banking Terms You Need To Know
Benefits of Debit as a Payment Option
What You Need To Know About Leasing a Credit Card Terminal
Fraud Protection 101
Cardholder Security: Avoid Monthly Fees, Fines, and Penalties What Is PCI Compliance (PCI DSS)?
   
THE PROCESSES
Four Key Components to Conduct eCommerce Successfully: What They Are, and How They Work
Web Site
Your Merchant Account
Secure Payment Gateway / Payment Transaction Software
Shopping Cart and Catalog
Should I use a third party processor like PayPal?
   
ANALYZING IT ALL
Quick Summary of Costs
Detailed Summary of Setup Fees, Recurring Fees, and Risk Estimate
Total Risk Estimate (TRE)
Total Risk Estimate Worksheet (Low-Medium-High)
   
THE DETAILS
Are you being stung with "Non-Qual" fees for keyed orders?
Have You Ever Felt Betrayed By Your Credit Card Processing Company?
Your Customers' Credit Card Numbers at Risk
Visa: Heartland, RBS WorldPay no longer PCI compliant
PayPal
Marketing 101: Gift and Loyalty Smart Card Technology Ensures Customer Loyalty
Check Warranty and Check Acceptance Policies
How Can I Prevent Credit Card Fraud?
Identity Theft
Merchant Account Comparison Worksheet
Glossary
 
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First Data Merchant Account