Merchant Services Explained – The Basics

Do you have a new business and need to set up to process credit cards? If so, you probably understand that you will need to get merchant services for your business by setting up a merchant account. What you may not fully yet understand is precisely how the merchant account works. If you have been processing credit cards for some time now, you probably will not benefit from reading this post since this outline will include very basic. However, if you are new to credit card processing and need a merchant account, read on.

A merchant account acts as an intermediary between the credit card issuer’s bank and the merchant’s actual bank account. The merchant account compiles the monies processed on a given day and moves that money into the merchant’s bank account. When the merchant swipes a credit card through their credit card terminal, the processing company (a.k.a. Merchant Service Provider) checks with the issuing bank to see if the funds are available. When it is found that the monies are in the account, funds get placed on hold. Days end, the terminal will either close itself out or be manually closed by the merchant in a process called batching. The merchant account will then move the money from each of the issuing bank accounts to the merchant’s bank account in one lump “daily batch” total that equals the amount processed; this takes 1-2 business days.

This process will repeat throughout the month as the merchant handles transactions through their merchant account. At the beginning of the following month, the Merchant Services Provider takes the processing fees out for the previous month’s credit card processing. Daily discount is an alternative way of assessing merchant services processing fees. On a daily discount set-up, you would see your costs come off the top of the daily credit card batch. Preferred by some small merchants with large individual sales, most merchants prefer that the fees come out the following month due to accounting reasons.

I hope that in being new to merchant services, you have found this simple explanation of merchant services useful to understanding the workings of credit card processing. If you have any additional questions or need assistance with getting set up to accept credit cards with your merchant account, contact Chris at 800.51.TOTAL /800.518.6825 or visit

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