At one time (say, five to ten years ago) there were big barriers to entry when it came to
accepting credit cards. There were stiff application fees, lengthy applications, and
detailed credit history checks. In most countries, it's still like that. But in the US,
competition for the exploding ecommerce market has eroded those restrictions. The shift
from a hardware-based to a software-based credit card processing system has also helped
democratize things. Now, virtually any adult in the US can take credit card payments.Credit Card Processing: Gateways and Merchant Accounts
What makes someone able to accept credit card payments? You
may think that a business (or "merchant" in credit card parlance) can accept
credit cards because of that little swipe terminal machine--or, in ecommerce, shopping
cart software. In fact, those aren't truly essential, at least not nowadays.
Fundamentally, what allows a business or an individual to
accept credit cards is a special bank account called a merchant account. Unlike a normal
bank account, you can't write checks on a merchant account or make withdrawals at a cash
machine. The merchant account is solely for accepting payments from Visa, MasterCard, and
whatever other cards you sign up to accept. Depending on your merchant bank's rules, the
money may be transferred electronically to your checking account at the end of every
business day, or it may be held a week or two to cover possible returns by customers.
Of course, you still have to have some way of getting the
actual payments from the customers to your merchant account. Nowadays, US merchant banks
use a special kind of software called a payment gateway. The gateway resides on the bank's
servers (or on the servers of a third-party company the bank has contracted with). By
going to the gateway website, you, the merchant, can enter in customers' credit card
information manually to process a payment. No swipe terminal required.
What about shopping carts?
Shopping carts are essentially the cash registers of
ecommerce. They don't actually process the payments. They just total everything up, take
the customer's credit card information, then transmit it all to the payment gateway, which
processes the payment. Since payment gateways and shopping cart software licenses are
often sold together, even many merchants don't know that the two are actually separate. In
fact, most shopping carts can work with a variety of different payment gateways. That's
important since continuing competition in the credit card processing world means merchants
want to be able to switch gateways if they can get a better deal down the road.
In short, the switch to a software-based system of payment
gateways has made credit card processing much simpler, faster, and cheaper than ever
before. Thanks to this payment revolution, any American with something to sell can now
compete with any business of any size, offering potential customers the security and
convenience of Visa and MasterCard. |
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