Merchant processing: an overview and significance

Merchant processing is what helps businesses process card payments from customers. From a customer’s or business’ view point, this process is quite simple as it involves swiping a card and transfer of money. The truth is there are several elements working to keep the processing service and networks flawless.

How merchant processing works

When a buyer swipes their card or clicks the ‘pay now’ or ‘purchase’ button on an e-commerce site, an authorization request is sent to the seller’s merchant service provider. The provider proceeds to forward the request to the credit card’s association or the card’s issuing bank for approval. The provider attaches to the request the card’s: number, expiry date, and CVV number. The authority that received the request will then send back the approval or rejection of payment to the merchant service provider. Finally, the service provider relays the message to the seller who will honor or decline payment accordingly.

If enough funds are available and payment is authorized, the card issuer holds the funds on behalf of the business, deducted by the bank or other authority. Processing fees are collected during this process where the card issuer receives a fee known as interchange- which is the largest share of the collected fees. The remaining fee is deposited in the seller’s merchant account, less that of the merchant service provider.
All this process is fully automated and only takes a few minutes.

Merchant processing significance

On the overall, merchant processing helps a business to grow by ensuring it does not miss out on payments because it cannot accept credit or debit cards. However, there are other importance businesses can derive from merchant services that are secondary to the main one. Such as:

Merchant processing gives a business easier time to obtain sales reports and other sales information.

A business can easily manage financial transactions by eliminating complexities that may occur in non-cash payments like bank transfers etc. which translates to shorter time to get paid.


Merchant firms each claim to be the best these days which makes it a hard decision for businesses. However, the most common consideration remains the number of companies a merchant processing firm deals with as well as the charges a business is likely to incur for services rendered to it.

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