Credit Card Processing and Merchant Accounts for Beginners

It’s time again for our continuing blog series on payment-processing solutions, brought to you by Vision Payment Solutions, a leader in the financial services industry and a provider of the best credit card processing and merchant accounts on the market. In this issue, we’ll be introducing readers to credit card processing and merchant accounts, and discussing their nature, purpose, and advantages involved.

Merchant Accounts

Before we introduce card processing and the steps in a typical transaction, you should understand merchant accounts, and how credit card processing and merchant accounts are intertwined.

A merchant account is a specialized account – much like a checking or savings account – designed specifically to enable a business to accept credit cards; a merchant account is issued by a financial institution, like a bank or an ISO (Independent Sales Organization), which has the authority to declare an organization as a business ready to accept, process, and manage its customers’ electronic payments, including debit, credit, gift, and other types of cards.

So, in order to accept payment from your card-carrying clientele or customer base, you must first establish a merchant account; such is the relationship between credit card processing and merchant accounts.

Credit Card Processing: Step by Step

Credit card processing typically exhibits a similar pattern of execution, whether the payment is issued face-to-face, by phone, or online.  While certain credit card processing and merchant accounts’ specifics vary, the fundamentals involved rarely differ.

Card processing can be divided into two separate activities – authorization of the card, and payment settlement:


1. A customer presents their credit card to purchase goods or services; their information is entered into a terminal, and submitted to the merchant’s payment processor.

2. The merchant’s processor then requests card authorization from the card issuer (Visa, MasterCard, etc.), who then responds with approval or decline to the merchant bank.

3. The merchant bank forwards this response to the merchant, and the transaction is processed if approved.

Clearing and Settlement

1. The transaction funds are deposited into the merchant bank, the merchant account is credited, and the credit card processor receives record of the transaction.

2. The processing system pays the merchant bank, debits the customer’s account, and forwards the transaction to the card issuer.

3. The issuer updates the customer’s account and bills him or her for payment.

4. Ideally, the customer receives their monthly card statement and “coughs it up,” so to speak, paying the card issuer the original transaction amount.