payments are going and what fees are and are not needed. The problem business owners
face, is that they just don’t have the time to learn everything necessary to understand
what they are being charged for. Some businesses may not even read their statement each
month, in which case they would have no idea if they are paying too much. This is a
simplified version of what charges you should expect. (Read the schedule of fees of any
contract you sign)

A merchant account is required to accept credit cards. A merchant account is a special
account with a bank that is a member of the Visa and MasterCard associations. Such a
bank has been certified by Visa and MasterCard associations and can provide you, the
merchant, with all of the services related to your merchant account.

Once your merchant account is setup and "live" on the credit card system, you can accept
credit cards from customers generally as follows:
1. A customer presents their credit card for payment
2. Using their credit card number, you submit an electronic request to the processing
network for "authorization to capture funds" from the cardholder's credit card account in
the amount of the purchase.
Traditionally, one would submit this request by swiping a credit card through an
electronic transaction terminal provided by the bank. With the system, this request is
provided electronically to our payment gateway servers, which then route the request
along the processing network.
3. The processing network immediately receives your electronic request and determines if
the cardholder's account is valid and if the funds are available. If they are, the processing
network returns an electronic response to your terminal or computer. This response is
called an "authorization code", and is your guaranteed authorization to capture the funds.
Typically, this code is a six-digit number. The transaction and its associated authorization
are stored in a "batch", where other transactions for that day reside.
4. You print a receipt for the customer using the electronic terminal or your computer and
the customer signs the receipt. As far as the customer is concerned, the transaction is
complete. As far as you the merchant are concerned, there is one more step to complete
the transaction.
5. At the end of your business day (usually), a final request is submitted to the processing
network to go ahead and "capture the funds" that you obtained authorizations for during
the course of business that day. This is called "settlement" or "settling your batch". With
a traditional physical credit card swipe terminal, this settlement process must be initiated
manually. One of the key advantages of our system is that this settlement process is
initiated automatically every day on our end.
6. At settlement time, the processing network immediately receives your response
electronically and determines if the capture amounts contained in your request match the
authorizations for each item. If so, the request is granted and an "Accepted" response is
returned to your electronic terminal or computer. A settlement report can be printed
showing the grand totals by card type (Visa, MasterCard, American Express, Discover,
etc) for the settled batch. Note: any corrections to your batch, such as voiding a
transaction, must be made prior to settlement.
7. Within 48 to 72 hours (usually), the funds associated with the batch you settled are
deposited electronically into your business bank account. Typically, the discount rate you
pay to your merchant account provider are deducted from the deposit before it transferred
to your bank account, resulting in a "net deposit" of funds.
8. At the end of the month, your merchant account provider will mail a statement to you,
detailing the credit card activity for the month and the associated fees you have been
charged for such.

Now that you understand the basics of how a credit card merchant account works, you
can see the role that the system has in the processing of your credit card transactions.

Understanding Your Merchant Provider’s Fees
All banks and merchant providers require "transaction fees" from you for accepting credit
cards. Typically, these fees are broken down into 3 categories:
1. discount rate,
2. transaction fee
3. monthly fees.
For the bank's purposes, a transaction is usually defined as any communication between
you and the processing network. A "credit" transaction is treated the same as a regular
transaction.
Settling a batch is usually considered a transaction as well, as it involves communication
with the processing network.

Discount Rate
This is the percentage of the total transaction amount that the bank will usually deduct
prior to transferring your deposit into your bank account. Typical discount rates range
from 1.7% to 5%, depending on your type of business and other factors.
A higher rate may be charged on individual transactions if the transaction doesn't
conform to certain qualifications, as described by your bank or merchant provider. For
instance, accepting a "Visa Business Card" credit card may cost you 1% more than
regular transactions.
The reasons for these non-qualified transaction surcharges and complete details on all
transaction qualifications should be discussed with your bank or merchant provider.
Address Verification (AVS) may also fall into this category when not used properly.
Address Verification (AVS) is described in the Developer's Guide.
Moto rates or internet rates are typically much higher due to fraud so shop around for
a good rate.

Debit rate
Debit transactions are usually lower than credit transactions and can range from 1.16%
to the same rate you pay for a credit card transaction.  Some companies offer 0% debit rates
but then have much higher transaction fees for all debit cards negating any benefit.

Transaction Fees
This is a flat amount that you pay for each transaction. Typical transaction fees range
from .20 cents to .50 cents per transaction.

Monthly Fees
These are fees charged for other account related services, such as customer service, your
monthly statement, network access fees, and minimum monthly fees.
All the fees and charges are required to be disclosed to you prior to your commitment to
the merchant agreement between you and your bank or merchant provider, and are
usually enumerated carefully to you in the merchant agreement itself.

Summary
The credit card industry has gone the way of the cell phone industry and dish/directv and is
giving away free equipment to eventually make money from the fees and hoping you stay
a customer for a long time to make back equipment costs.  Most free equipment deals
are much better than buying or leasing equipment, there are even free wireless terminals
for those that do not have a phone line.  Look on Ebay for a good free equipment program
with low fees and you have got the best of both worlds!!!

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