What are merchant account credit cards?

This very confusing question can be read in two ways. What is a merchant account and what is a merchant, or store, credit card? These two very separate things have nothing to do with each other. A merchant account is how a store is able to accept credit card payments and a merchant, or store credit card, is a credit card that consumer can get that is specific to one particular store.

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The only people that really need to know how merchant accounts work are merchants themselves. The majority of consumers are unaware of the merchant account process and do not really care how it works as long as their point of sale credit card payments go through.

However, consumers should be aware of both the advantages and disadvantages of having a store credit card. You can find more information about store credit cards and whether they are worth getting at sites like Suze Orman’s and SmartMoney magazine.

What is a merchant account?

The special bank account that lets a merchant process consumer credit cards as a form of payment is a merchant account. Having a merchant account is vital to any business’ success today since fewer people carry cash and write checks. Most people prefer to pay for purchases with credit and debit cards since it so much faster.

The merchant gets a credit card terminal when they open a merchant account. This terminal is what the consumer slides their credit card through. This piece of equipment is what carries out the payment process. Before these electronic timesavers, merchants had to take an impression of the customer’s credit card and mail it to the bank that processed their payments. The electronic credit card terminals have made the entire much quicker and safer for both the merchants and the consumers.

How does merchant account credit card processing work?

Four often-complex steps are involved in processing a credit card payment. Most consumers are completely unaware about how their payments are processed and are not even present for most of the process. These steps are:

  • Authorization
  • Batching
  • Clearing
  • Funding

While there may be many things that happen during some of these steps, they happen so quickly thanks to advanced technology that they are completed in just a few seconds.

The consumer is present for the first step in the process, authorization. Once the consumer swipes their card in through the credit card terminal, the credit card information is sent to the processing service, also known as the acquirer. The acquirer sends the payment information to the issuer through the credit card network. The issuer lets the acquirer know if the consumer has enough money to cover the purchase. If they do, the payment is approved and the consumer leaves the merchant with their goods.

The second step, batching, involves the merchant sending all of the information from all of their credit card transactions that day to the acquirer. They send this information to the acquirer to receive payment.

Clearing is the third step and involves the acquirer sending all of the information he received through batching to all of the credit card issuers. The issuers then process the payments and take out any fees they are owed before sending the funds back to the acquirer.

In the final step, funding, the acquirer subtracts any fees they are owed from the funds they received from the credit card issuers before sending the final payment back to the merchant.

What is a store credit card?

Store credit cards are credit cards that can only be used at a specific store. Often if a store is a subsidiary and the parent company has more stores, that credit card can be used at all of the stores owned by the parent company.

Store credit cards can be very tempting to consumers that like to shop, especially the cards offered by their favorite stores. These credit cards typically offer special discounts to cardholders and like to send exclusive coupons through the mail. While a discount is always a good thing to have these credit cards are notorious for their extremely high interest rates.

Most financial professionals advise against getting store credit cards. While the cardholder might qualify for certain discounts they will also be tempted to spend more since a credit card with no balance can almost seem like free money. Once a store credit card does have a balance they can be very difficult to pay off because of the interest payments.

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