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What is a merchant account? A merchant account is an account held at a bank that will underwrite or be ultimately financially responsible for charges accepted by a merchant. Many merchants do not understand that it can be difficult to obtain because not all banks want to accept the risk of accepting credit cards via the Internet. If a merchant were to accept credit cards from customers and did not deliver the product or service, the bank could be held liable for refunds. If the merchant took the money and disappeared, the Acquiring bank (Merchant account provider) would be responsible to pay all the charges back.

When a customer comes to your website and chooses to pay by credit card they enter their credit card into a secure order form. This information is encrypted and sent into the Credit Card Banking System or Visa/ MasterCard processing network. 

Once the connection is made a call is made into the customers credit card issuer such as Citibank or Bank of America. Once the bank has been contacted, it will issue an approval code that is either approved declined. This information is routed the same way in which it came back to Processing solution. The approval code is registered on the website and the Customer is informed that their card has been charged. At the end of the day the Merchant has to approve the transactions by reviewing the Address Verification codes. This is referred to as "Batching out" or sending receipts into the bank for processing. This information is sent to the Federal Reserve Bank, which will transfer the funds from the credit card issuers to the Acquiring Bank ( i.e. Humboldt Bank, Provident Bank, Woodforest Bank etc.). This process takes about 48 hours. Once the Acquiring Bank has received the funds from the Federal Reserve they transfer the funds, minus their fees, to the Merchants Bank account. This process only happens on business days.

Q: What is the discount rate?

A: The discount rate is the rate that is charged per transaction for the privilege of accepting credit cards from the various credit card companies. This rate varies based upon the type of business accepting credit cards. Some businesses have a higher risk of their customers either committing fraud or excessive charge backs.

Q: What is a transaction fee?

A: This fee is to offset many of the charges for doing business between processor that are handling transactions. In the Case of Cybercash, they charge 10 cents for providing a free software download and customer support. In many cases this fee is to help reduce the discount rate. Some banks charge higher rates for non-traditional processing of credit card orders. Instead of paying 4% per transaction you may pay $2.55 + 30 cents per transaction. Depending on volume the per transaction fee can actually save the merchant money.

Q: How long does it take to have funds transferred to my account?

A: Between 48-72 hours. Monday would be paid on Wednesday, Tuesday on Thursday and Wednesday on Friday. Friday and weekend receipts would be processed as soon as they arrive at the bank. Friday s receipts are typically paid on Tuesday. These times apply only if the account is batched out by 4:00 pm pacific time.

Q: What is a batch out

A: A batch out is when all of the days receipts have been reviewed by the merchant and have been submitted to the bank for settlement. When an approval is given the money from the credit card has been reserved, only until the batch out are the funds actually transferred.

Q: What is a Rolling Reserve?

A: A rolling reserve account is an account that is implemented by the processor to protect against chargebacks. Some industries such as adult entertainment online and travel agents have a history of receiving a large number of chargebacks from customers. Instead of a processor asking for a depositing account that could equal 1 months total receipts this is used instead. This account is held for six months and is repaid at the start of the seventh month. The first month receipts were collected is paid back to the merchant. If there were any chargebacks or penalties arising from the chargebacks they would come from the rolling reserve account.

Q: What is a Processor?

A: A processor is a company that tracks all credit card transactions and prepares statements for merchants to track their progress. Many times, the processor underwrites risk or the amount the merchant agreed to process per month. If chargebacks occur the processor takes the funds form the merchants account.

Q: What is an acquiring bank ?

A: An acquiring bank is an institution that may underwrite risk for merchant accounts but also sends money to the merchants business checking account. After settlement the money was held by the credit card companies has to be transferred from the Federal Reserve system within the US.

Q: What is a Chargeback?

A: a chargeback is when a customer has called their credit card company and has requested a full refund. The credit card companies, in order to promote more usage, have given consumers the ability to simply chargeback any product or service where their card was not present for up to six months.


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