Every day, millions of credit and debit card transactions are completed through both online and offline channels. Learning exactly how these transactions are processed is crucial especially if you intend to start accepting payments from your clients and customers through credit and debit cards. Merchant services processing is one of the key components in the complex system of credit and debit card processing that you need to learn about.
What is merchant services?
Merchant services refer to the process through which electronic transactions are managed. This service is rendered by a merchant service provider. Merchant services processing involves the transmission of necessary information regarding sales that makes the completion of a transaction possible. To put it simply, merchant services processing involves three stages of authorization, collection of funds for the card-issuing bank, and payment of the funds into the merchant bank account. Of course, the inner workings of this process is more complex.
Who is a Merchant Service Provider?
A key part of the payment processing landscape that makes it possible for businesses to accept payment through various payment methods is the merchant service provider. Your merchant service provider serves as a middleman between you as the merchant and the two financial institutions involved in completing the transactions (the card (issuing bank and merchant’s bank). The merchant service provider will handle the tracking of transactions, security of transactions, fraud protection, and other aspects of card payment processing so you don’t have to hash out every transaction or disputes with the banks by yourself.
Why does merchant services processing matter
In the few seconds it takes to complete card payment transactions, a lot happens behind the scene to make it possible for a merchant to receive payment for goods sold or services offered. There are a series of steps involved in every transaction which would not be possible without merchant payment processing.
The transaction starts when a customer makes a payment using any electronic payment either offline with a POS system or online through a payment gateway. The transaction information which includes the amount to be paid, issuing bank info and the card number is collected and transmitted through the payment software to the merchant service provider.
It is the merchant services provider that does all the heavy lifting of merchant services processing which makes transactions possible. The transaction data collected are transmitted to the card-issuing company (e.g. MasterCard or Visa) and to the customer’s bank. This is known as the authorization stage where the validity of the transaction and the available funds or credit limits on the presented card will be verified. If the payment is authorized, the approval will be transmitted to the card issuer and the merchant service provider then handles the transfer of funds to the merchant bank account.
While this process appears to be complicated, it is completed in just seconds. But this smooth and seamless interaction between the various components of the system will not be possible without merchant services processing which is provided by the merchant service provider. The merchant service provider is also saddled with the responsibility of providing all the tools your business needs to make this process of payment processing more convenient, secure, and faster for customers.