VPS Presents: An Introduction to Merchant Accounts

Today, Vision Payment Solutions would like to reach out to all those new business owners out there, whether or not they’re familiar with credit card processing, merchant accounts, payment gateways, or any related credit card industry terminology, and review some important market vocabulary. In this way, we can educate newcomers while simultaneously refreshing our other, more experienced clientele, and provide a clearer understanding of the concepts we manage every day. So, what do some of these credit card terms mean?

A merchant account is a specific kind of bank account that allows businesses to accept payments by debit or credit cards. A merchant account is established under an agreement between an acceptor and a merchant-acquiring bank for the settlement of credit card transactions, debit card transactions, or both. Often, a payment processor or independent sales organization is also a party to the merchant agreement, and can mediate functionality more efficiently. Whether a merchant enters into a merchant agreement directly with an acquiring bank, or via an aggregator, like PayPal, the agreement binds the merchant to obey the Operating Regulations established by the card brands.

These days, the vast majority of credit card transactions are transmitted electronically to merchant processing banks for authorization, capture and deposit. Various methods exist for presenting a credit card sale to the system. Either the credit card’s magnetic strip is read by a swipe through a credit card terminal, a computer chip is read, or the credit card information is manually entered into a credit card terminal, computer, or website. The earliest methods, submitting credit card slips to a merchant processing bank via snail mail, or accessing an Automated Response Unit (ARU) by telephone, are still used today, but electronic devices have largely bypassed this. Early techniques implemented two-part forms and a hand-operated device for mechanically imprinting the embossed credit card number information onto the forms.

A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is the equivalent of a physical POS (point-of-sale) terminal located in most retail outlets. A merchant account provider is typically a separate company from the payment gateway. Some merchant account providers have their own payment gateways but the majority of companies use 3rd party payment gateways. The gateway usually has two primary components, the virtual terminal that can allow for a merchant to securely login and key in credit card numbers, or have the website’s shopping cart connect to the gateway through an API, allowing real-time processing from the merchant’s website.

Vision Payment Solutions consistently arms its clientele with industry knowledge on merchant accounts, credit cards, and much more. VPS would like to wish all of our faithful merchants – and you newcomers, as well – a happy and healthy holiday season, and a happy new year!