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How does it work?

One of the most confusing credit card processing concepts for online merchants is the difference between the "payment gateway account" (the online card processor) and "internet merchant accounts". Though these are two seperate components of credit card processing, they are both necessary and work together to handle payments automatically.

Internet Merchant Accounts are seperate bank accounts for the merchant that are approved and capable of receiving credit card payments from credit card providers. Internet merchant accounts typically do not hold funds for an extended period of time such as your typical bank account but usually transfer payments to another bank account designated by the internet merchant on a daily basis.

The Payment Gateway Account is the online credit card processor or transaction handler which is capable of hooking into credit card accounts belonging to the online shopper and the merchant's internet merchant account (above). The payment gateway handles the verification and transfer requests. The term account when used with "payment gateway" is not a funds holding account but rather a "service account" that typically has a log in where you can configure your payment gateway settings.

Commercially available shopping carts such as Easystorecreator typically have configuration settings allowing a number of gateway choices. An internet merchant will usually want to select the shopping cart and web site hosting company and then order their merchant account based on the gateways that are available in the shopping cart. The following information diagrams the typical payment process from the time the order is placed in the shopping cart to the funds being deposited in the merchant's bank account.

Typical steps to an ecommerce transaction
The cardholder, via an internet connection and browser wants to pay for goods and services from the merchant.

The merchant passes the amount to be paid along with the cardholder’s details to the payment gateway for transfer to the acquiring bank so that the transaction can be authorised.

The payment gateway transfers this data via the internet to the acquiring bank, with which the merchant has a relationship.

The payment gateway passes the data to the acquiring bank for authorisation.

The acquiring bank passes the data into the various credit card networks so that the data arrives at the credit card issuer.

The credit card issuer checks the cardholder’s account to see if sufficient funds are available. If sufficient funds are available then the funds required for this transaction are reserved.

The Issuer then sends the result of this check back to the acquiring bank.

The acquiring bank sends this result to the payment gateway.

The payment gateway sends this result to the shopping cart software installed at the merchant.

The shopping cart gives this result to the merchant.

If the authorisation result is negative, the merchant informs the cardholder and the transaction ends. If the authorisation result is positive then the merchant informs the cardholder and the goods or services are dispatched.

Once the goods or services are dispatched to the cardholder, the funds are transferred from the cardholder’s account to the acquiring bank.

The acquiring bank deposits the funds in the Merchant’s account . The merchant pays the acquiring bank for providing this service an agreed upon merchant fee.

Merchant account fees can be especially confusing for those new to ecommerce. Click here for a complete description of merchant account fees.
 
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