Does Your Website Accept Credit Cards?

From: Entrepreneur.com
Date: March 22, 2004
By Tim W. Knox
Brief Article Summary:

• Q: I'm launching a Web site that will sell used stereo equipment, and I want to be able to accept credit cards. I've heard that I'll need a merchant account and a credit card processor, but I don't understand what that means. Can you explain?

• A: The decision to accept credit cards is a wise one for any retailer. Research has shown that accepting credit cards increases revenue and helps with cash flow, since you receive the money within a couple of days instead of waiting up to a week for a check to clear.

• Here's how online credit card processing works:
• Your customer submits his credit card information at checkout on your Web site.
• The shopping cart software sends the transaction to the gateway.
• The gateway routes the information to the processor.
• The processor contacts the bank that issued the customer's credit card.
• The issuing bank approves or declines the transaction.
• The processor routes the result back to the gateway, which then passes the result back to the Web site shopping cart system.

• The entire process is done electronically and takes just seconds to complete.

• Credit card processor: The credit card processor is an electronic data center that processes the credit card transactions coming from the gateway company, ensures the charge is valid and then settles the funds in your merchant account.

• Internet merchant account: An Internet merchant account is a bank or account in which funds from online sales are deposited by the processor. Merchant accounts are usually issued by banks that are associated with the major credit card services like Visa and MasterCard. Be aware that many banks will not grant merchant accounts to Internet merchants, as they are often categorized as high-risk ventures. This policy varies widely and, in the end, the granting of the merchant account will come down to economics from the bank's point of view. If the bank sees even the smallest iota of risk, you will not be granted the account.

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