How Does Online Credit Card Processing With a Bank Work?
Businesses that accept credit cards as payment have options to process online transactions. Typically, banks that already have a relationship with a business also have the ability to process credit card transactions. There are also outside companies that offer processing services to businesses.
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Local Banks
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Local banks that offer credit card processing may have customized software for businesses to use on their websites and online stores. Banks may also have software plug-ins that allow their processing service to be used with popular e-commerce software. Funds are stored in an account at the processing bank, minus transaction fees.
Credit Card Companies
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Companies like Visa and MasterCard also offer processing. While functionally similar to third-party credit card processors, these companies are typically able to negotiate discount pricing tiers for businesses that conduct a large volume of transactions.
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Third-Party Processors
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Third-party processors typically operate as a transaction clearinghouse between the business and the credit card companies. There are many credit card processors, who compete for businesses to use them by having lower transaction fees than banks or other processors. Funds from transactions are usually paid to businesses by check or electronic transfer, which causes a slightly longer delay for businesses to receive their money than with banks.
Online Processors
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Online processors such as Google Checkout and PayPal, process transactions for businesses. However, unlike banks and third-party processor,s the actual transaction handling is done on the processor's website, and not the business' website or online store. The customer creates an account at an online processor's site and does not reveal financial information to the business. The processor holds the funds and will send checks or electronic transfers to the business. Some also create their own debit card to allow the business to access their funds.
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References
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