Internet Processing: Understanding its Role in the eCommerce Process
Internet processing of credit card payments is a bit different from how we handle card-present transactions. Whether you’re new to credit card acceptance, or a brick-and-mortar retailer interested in establishing an online store, it’s important to understand what’s going on behind the scenes of online payment processing.
In this post, we’ll explain the mechanics of internet credit card processing. We’ll examine the different costs involved, and outline some of the unique challenges and risks that should be considered.
What Is Internet Processing?
- Internet Processing
Internet processing is the method used by merchants to electronically accept customer payments involving debit or credit cards.
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When we refer to credit card internet processing, we’re talking specifically about the way payment card transactions work in an eCommerce setting. Before we get too deep into the process, however, let’s take a quick look at the entities involved:
- Merchant: A business accepting card payments.
- Cardholder: The authorized user of the credit card.
- Card Networks: Card brands like Visa, Mastercard, American Express, or Discover.
- Acquiring Bank: The bank at which you have your merchant account.
- Issuing Bank: The cardholder’s bank which issued the card used for the purchase.
- Payment Processor: A provider responsible for handling data between parties.
- Payment Gateway: Technology that acts as a bridge between you and the banks.
How Internet Credit Card Processing Works
The entire transaction process starts with the cardholder. Shoppers visit your website, make their selection, and proceed to checkout. Once there, they fill out a web form. This form combines transaction information with personal data such as name, address, shipping details, and credit card information.
Once the webform is completed and submitted, the transaction processing begins. There are for main steps to this operation:
- Authorizing: The payment processor authorizes the transaction, ensuring that the card hasn’t been reported stolen and the cardholder has sufficient funds/or credit available.
- Batching: The merchant submits a collection (batch) of transactions, typically at the end of the day. The batch is forwarded to the appropriate card network by the acquiring bank.
- Clearing: The card network passes transaction details to the issuer, which charge the cardholders account. The issuer then transmits payment back to the acquiring bank.
- Funding: The acquiring bank deposits funds into your merchant account, less any applicable fees. Once the funds appear in your account, they are available for use.
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Internet Processing: Fees
As you might suspect, none of the providers involved are working for free. Each one charges a fee for their services. These will typically include:
- Transaction Fee: A fee assessed for each processed payment
- Gateway Fee: The cost of having transaction information encrypted and securely transmitted.
- Per-Transaction Gateway Fee: Charged for each transaction that goes through your gateway.
- Statement Fee: A flat fee for your monthly record of transactions, provided by the processor.
Depending on the provider, there may be additional charges associated with online processing, too. These may include:
- Application Fee
- Setup Fee
- PCI Compliance/Certification Fee
- Ongoing Customer support
… and potentially others. Some of the various charges are one-time only. Others range from $10-20 per month. Others might be applied on a per-transaction basis; for example, charging $0.15-0.75 per transaction processed.
The Risks and Challenges of Internet Processing
By their very nature, payment card transactions present a certain amount of risk to the merchant. Many of the challenges that accompany brick-and-mortar sales, however, are amplified in the realm of eCommerce.
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What is internet processing?
Internet credit card processing refers to the technology and methods merchants use to process credit card payments from online transactions.
How does online transaction processing work?
The transaction process involves multiple parties, including merchants, cardholders, banks, card networks, and other service providers. Each of these parties have multiple touch points in each individual transaction.
Do I have to pay for internet processing?
Yes. There are a number of fees associated with internet processing, from administrative and set-up charges to per-transaction fees and more. Talk to your processor for more information on your specific monthly/transaction costs.
Does internet processing increase my chargeback risk?
Indirectly, it can. The process itself doesn’t present a significant risk, but using internet processing means you’re dealing with eCommerce transactions. That in itself typically means you have a higher chargeback risk, and other associated factors might increase that risk even more.