The Nuts and Bolts of Credit Card Processing

At the end of the business day, the merchant sends that day's charges, in a batch, to the credit card network for processing. The transactions travel via the merchant's credit card processor. Individual

transactions are then stripped out and sent back to the individual cardholders' banks. Banks then debit cardholders' accounts and make appropriate payments to the merchant's credit card processor through the Federal Reserve Bank's Automated Clearing House.

The credit card processor then credits the merchant's bank account for the transaction amount, minus its fees for the transaction. Those fees also go toward paying transaction fees to the issuing bank and the credit card network. Despite the use of computers, it can take two business days before the merchant's account is credited.

Opening a Merchant Account

In order to accept credit cards, you must open a merchant account with a bank. However, many banks have gotten out of the credit card processing business, and those that remain are often skittish about servicing small businesses, particularly ones with limited operating histories.