Title: Internet Merchant Account: Behind the Scenes

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Merchants should understand how an internet merchant account works, specifically how such an account transfers funds from the customer to the merchant.” A clear step-by-step description of funds transfer is presented along with a brief explanation of the key components that comprise an internet merchant account.

internet merchant account, merchant account

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Copyright 2006 William Hamilton

Internet merchant accounts are a type of bank account for online business owners that have the sole express purpose of receiving credit card payments from credit card companies. They hold these payments for a brief period, usually less than a day, before being transferred to a regular bank account chosen by you, the business owner. Internet merchant accounts work together with your payment gateway or online card processor to handle credit card payments automatically.

To better understand, the process of funds transfer from a consumer’s credit card account to an internet merchant account, a few terms first need defining.

What is a Payment Gateway?

A payment gateway is the online credit card processor, which does exactly what it sounds like: it provides a path between the consumer’s credit card account and the online business owner’s internet merchant account. Specifically, payment gateways take care of the verification of the consumer’s account information and the business owner’s request to transfer the payments. When you choose your shopping cart and website host, they will offer you a variety of gateway choices. Based on these payment gateway choices, you can choose a compatible internet merchant account.

What is Funds Capture?

Funds capture describes the process by which a transaction deposit is made in your internet merchant account. Funds capture is a request for settlement or payment for a transaction; it does not actually put funds into your internet merchant account.

What is Settlement?

A settlement actually puts the funds from a funds capture into your internet merchant account. Settlement is the funds transfer from the consumer’s credit account into your internet merchant account. A refund settlement reverses the flow of funds from your internet merchant account to the credit account of the consumer.

How Does The Process Work?

The process by which money is transferred from the consumer’s credit account to your internet merchant account is relatively simple. It is not unlike the credit card payment process that happens with a brick and mortar establishment. Broken down into a step by step description, the payment process to your internet merchant account looks something like this:

1. The first step actually begins when you open your business, purchase your product, advertise your wares, and attract your first customer to your online shop. Through a secure web page on your site, your customer makes a purchase using your shopping cart and payment gateway, creating an order.
2. The order information including credit card information, shipping information, and product information is gathered and compiled through your web host/shopping cart, creating a form for the credit card processing company.
3. The payment gateway takes over, and the form is sent from your online store to your credit card processing company. The company double checks the information for completeness and accuracy, figures out which company owns the consumer’s credit card, and then sends a request for funds to cover the consumer’s purchase.
4. Now, the process is in the hands of the company that owns the consumer’s credit card. They validate the consumer’s card and account, verifying that there are enough funds to cover the payment request. If everything checks out, the credit card company sends word back to the credit card processing company that the funds, in fact, are available for transfer. If there’s a problem, the credit card company lets the credit card processing company know what the problem is.
5. The credit card processing company relates the information back to the web host and shopping cart program. The shopping program lets the consumer know whether or not to expect her order and also tells you, the business owner, whether or not to ship the goods.
6. The credit card processing company initiates the funds capture, the process by which the funds will be sent from the consumer’s account to your internet merchant account.
7. The settlement occurs when your internet merchant account receives the funds from the consumer’s credit card company. And voila! The transaction is complete.

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