Payment processing

The Basics of Merchant Payment Processing

Are you considering landing a merchant account so that you can provide customers with payment processing options? To ensure you set out on the right foot, you need to learn the basic ropes of how merchant payment processing works. There are a lot of payment solutions and contracts of varying reputability on the market, and you’ll need to be discerning if you don’t want to deal with unreasonable monthly statements.

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In this blog, you’ll find an overview of merchant payment processing, including details such as what you’ll need to get started, how payments are processed, and what unnecessary costs you should avoid or at least mitigate. Read on to gain the knowledge you need to effectively shop for a merchant services provider!

Obtain a Reliable Merchant Account

Before you can start cashing in on a Canadian economy that’s focused on plastic payment transactions, you need to obtain a merchant account. And not just any merchant account; you need an account that’s offered by a reliable provider. Ask questions up front about their payment plans, associated rates, additional fees, and termination penalties.

You’ll also want to learn early on about whether they have the top three features a provider should have, namely, funding and settlement times, security and fraud protection, and easy integration and support. You want a payment processing provider that can offer sustained solutions for your business, especially if you’re considered a high-risk merchant who runs a higher chance of experiencing chargebacks.

Once you have a reliable provider, apply to them for an account. You’ll be reviewed for approval and once you’re cleared the provider will help you set up your account. Your provider will also work with you to determine what the best merchant payment processing system (POS terminals, e-commerce sites, etc.) is for your business.

How Transactions Work

Whenever you accept payments from customers, whether they’re ordering online or in-person with cards present, your business will collect the necessary information from them. Online customers will fill out an order form with credit or debit-visa info to complete their order, while in-person transactions will have your terminals collecting the same payment details from their card.

This information will be sent on to your payment provider in the form of a secure authorization request, which is in turn passed on to a bank or card issuer. If the bank or card issuer can confirm the customer’s account is valid or not at its limit, the order will be complete and statements of approval will be sent to the merchant and then the customer.

After all that, it’s up to the bank or credit card company to transfer the requested funds to the bank or payment provider. Once your provider has the funds, they’ll transfer them to your merchant account.

How Returns and Chargebacks Affect Your Business

Returns and chargebacks need not be detrimental to your business, but you need to understand what happens in each instance to be able to deal with both. For returns, no matter why the customer wants to return a product or receive a refund or a discount, you must submit a request to your payment provider to take funds from your merchant account and allocate them to the customer’s account or card.

Chargebacks are a bit more complicated, because these are when a customer disputes charges with their credit card company. When chargebacks happen, credit card companies auto-debit the amount disputed from a merchant’s account and withhold that amount until an investigation of the claim is completed.

If the claim was valid and there were fraud erroneous charges involved, then the credit card company returns funds to the customer’s account. To avoid sticky situations like defaulting on your merchant account’s monthly minimum, make sure you’ve partnered with a provider that offers major chargeback protection.

Keep these notes in mind when setting up merchant payment processing.


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James Newman

James brings over 30 years of experience in the telecommunications and merchant services industry to his role as Client Relations Specialist for BNA Smart Payment Systems. With a focus on sales, marketing and client services, the last 10 years have been spent with BNA. He has completed over 2,000 hours of professional business training, including professional sales, solution selling, conflict resolution, appraisal workshop, strategic marketing, and financial analysis. Outside of work, James is almost constantly reading fiction. In direct contradiction to this rather silent interest, he took up the guitar six years ago and regularly, happily, and shamelessly destroys the peace and quiet of his family home.

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