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How Does a Merchant Account Work?

Understand the basics of how credit card payments are processed with merchant accounts.

Many people want to know exactly how a merchant account works before they sign up. Essentially a merchant account is a relationship with a company that helps your business process credit and debit card purchases. The company verifies that the customer can pay for the purchase and then processes the payment and deposits it into the business's bank account. Here is a more in depth look at the process.

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1. Card is Swiped or Manually Entered

The process is all started when a credit card is swiped in a credit card terminal or the credit card number is manually entered into the system set up with the merchant account company.

2. Payment Gateway Verifies and Processes the Payment

Within about 5 seconds, the merchant account company verifies that the customer can pay for the purchases and sends back a message that the payment is accepted or declined. An authorization number is also sent back for the purchase.

3. Payment Batches are Processed

At the time chosen by merchant, they process the batch of payments from the day or shift. The batch of payments is then sent to the merchant account company for final processing.

4. Transaction Fees are Applied

After the payments are processed, the merchant account company takes out transaction fees for processing the payment. They also prepare a batch report for the merchant.

5. Payments are Deposited into the Merchant's Account

Lastly, the payments are deposited into the merchant's bank account. This usually happens within 2-3 days.

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