Merchant Processing

Merchant processing is the service and technology that allows businesses to accept and process payments via credit and debit cards. This essential capability enables merchants to facilitate electronic transactions, providing a convenient payment option for customers who prefer not to use cash.

The process typically involves a series of steps beginning with the customer presenting their card for payment, either through a physical swipe, chip insertion, or contactless method at a point-of-sale (POS) terminal. The merchant's system captures the card information and securely transmits it to a payment processor. This processor then routes the data through the relevant card network (e.g., Visa, MasterCard) to the bank that issued the customer's card (issuing bank) for authorization.

The issuing bank checks the transaction details, verifies the account's standing and balance, and either approves or denies the transaction. This decision, along with a unique authorization code if approved, is sent back through the network to the merchant's terminal. If the transaction is authorized, the merchant can complete the sale.

After the day's transactions are completed, the merchant sends a batch of approved transactions back to the payment processor for settlement. The processor facilitates the transfer of funds from the issuing banks to the merchant's bank account, typically within a few days. This stage is crucial as it involves the actual movement of funds corresponding to the transactions processed.

Merchant processing fees are deducted from the settled funds, including interchange fees paid to the card-issuing banks, fees to the card networks, and processing fees for the payment processor itself. These fees vary based on the merchant's industry, the types of cards accepted, and the agreement with the payment processor.

Overall, merchant processing is a critical function for modern businesses, allowing them to securely and efficiently handle a high volume of transactions and meet consumer demand for easy and flexible payment options.