Ecommerce Guide To Real-Time Payments

Merchant Account

A merchant bank is a financial institution that provides business level accounts to merchants for collecting payments from consumer bank or credit card accounts. If you’re already selling products from a retail location, you probably have a Card Present (CP) merchant account. However, if you wish to use real-time processing of orders, you’ll also need a Card Not Present (CNP) merchant account. A CNP account is used by merchants that receive payments via the Internet or in situations when a payment is not physically presented to the merchant by the consumer at the time of the transaction (e.g. telephone orders).

In the payments industry, Independent Sales Organizations (ISOs), Merchant Services Providers (MSPs), and Value-Add Resellers (VARs) are most often the organizations that provide merchant accounts. You can also contact your current banking partner to find out if they provide CNP merchant accounts.

Payment Gateway Account

Payment gateways provide the necessary infrastructure that enables merchants to accept credit card and electronic check payments from Web sites, mail order/telephone order (MOTO) call centers and even retail and mobile locations. In other words, an online payment gateway virtually replaces the traditional credit card swipe machine you find in the physical retail world. It captures your customers’ payment data and securely communicates with the appropriate financial institution to process and deposit proceeds into your merchant account. The payment gateway also provides tools and solutions that help you manually submit transactions, protect your business and your customers from fraud, secure online access to transaction records so you can track sales.

To accept transactions online, you or your Web developer will need to connect your Web site to the payment gateway. Your payment gateway provider will give you instructions to accomplish this.

Credit Card Payment Flow

The electronic payment process may be difficult to understand at first. The diagram below illustrates the flow of payment information and funds from a merchant’s Web site to their bank account.

Ecommerce GuideStep 1: A customer submits a credit card or electronic check transaction via a secure connection from your Web site. This information is sent to your gateway provider.

Step 2: The gateway provider receives the secure transaction information and passes it via a secure connection to your bank’s processor (a financial partner that provides credit card processing on behalf of the credit card associations, for example, Visa or MasterCard).

Step 3: Your bank’s processor submits the transaction to the Credit Card Interchange (a network of financial entities that communicate to manage the processing, clearing, and settlement of credit card transactions).

Step 4: The Credit Card Interchange routes the transaction to your customer’s Credit Card Issuer.

Step 5: The Credit Card Issuer approves or declines the transaction based on the customer’s available funds and passes the transaction results, and if approved, the appropriate funds, back through the Credit Card Interchange.

Step 6: The Credit Card Interchange relays the transaction results to your bank’s processor.

Step 7: Your bank’s processor relays the transaction results to your gateway provider.

Step 8: The gateway provider stores the transaction results and sends them to your website for completion of the order.

Step 9: The Credit Card Interchange passes the appropriate funds for the transaction to your bank, which then deposits funds into your merchant bank account.