Safe and Secure Business Blog

While many people have partaken in online credit card processing thanks to popular sites like PayPal or by making a purchase directly from an online vender, few people have a working knowledge of how online credit card processing works.

There are several kinds of credit card processing, but the field is dominated by two services.  The first is called third-party processing.  This is utilized by companies like PayPal who allow people to make credit card payments through their site via manually entered transactions.  The second type of processing is called a merchant account, where an e-business has paid a provider for the ability to process credit card payments directly form their website.

Regardless of the processing service that is used, credit card processing works in the same way.  Once you select an item to buy, you will be directed to either the website or a third party’s checkout.  From here you will be asked to enter the payment type (credit card for the purposes of this example).  This will bring up a screen or window for the manual entry of your credit card and personal information for the purpose of verifying that you are the rightful owner of the card.  As soon as you click the purchase, complete order, done, etc button your encrypted credit card information is sent to the merchant’s processor via a secure connection.  The processor then routes the transaction onward to the credit card’s issuing bank.  The bank confirms the validity of the card, checks the card’s balance, and either authorizes or declines payment.  This decision is routed through the processor again who passes it back to the transaction’s originator.  Depending on whether the card was accepted or denied, the order is then either accepted or likewise denied.  If the order is accepted, this triggers the website’s server to send a confirmation receipt.  This process usually takes less than a minute.  In the meantime, the funds are moved from the card holder’s bank to the processing bank.  For security reasons the funds are held for a predetermined amount of time before finally being moved to the merchant’s business account.

It sounds relatively simple, but requires a reasonable amount of technology to work smoothly.  For example, both third-party processors and merchant accounts have what is called a payment gateway.  This is the software or system that gives them access to the processors and the issuing banks.  Most payment gateways include what is called a secure gateway provider.  This tool keeps the connection between the merchant and the processor secure, so that hackers and other predators cannot access your personal account information.  The technology that allows your credit card information to be processed through manual entry is called a virtual terminal, because it performs the same function as a physical terminal but with software instead of a tangible point of sale system.

There is other, more advanced technology behind this technology, and so on and so forth all the way down to the coding in your programs and the circuits in your computer.  Credit card processing is a service born of both necessity and invention, and fortunately for you using it requires little more than a click.

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This entry was posted on Monday, April 13th, 2009 at 6:12 pm and is filed under Business product. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.