Recently I had a good friend ask me how to set up a merchant credit card account on his site. A search turned up this handy little article for those of us who've always wondered how things work.
Full text
here; summarized text below.
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To set up a merchant account, you will need:
* A bank that issues to you a merchant credit card account
* A transaction clearinghouse designated by your bank
* Hardware or software gateway to the clearinghouse
* A merchant credit card broker (optional)
* (Security is vital, but beyond the scope of this article)
Bank
A bank or other financial institution is required to set up a Visa or MasterCard merchant credit card account for you. Ideally, this is your own bank, where you already have a checking account. Banks don't let you forget that they are taking a risk with you. If, for example, you failed to deliver the product or service paid for with a credit card, they would be responsible for making it good. Of course, they are getting paid enough to cover this risk, the processing charges, but they check you out pretty carefully before issuing you an account. Assuming that you have decent credit, they will help you set up an account.
So what do you do if your bank or financial institution won't set up an account that allows you to take credit card information over the Internet? You go to a broker.
Merchant Credit Card Broker
You don't have to look long on Yahoo to find that there are many, many people who want to help you set up an account -- for a fee. Some of these people are very reputable, some are shysters. In industry parlance these are called Independent Sales Organizations (ISOs). Make sure you check them out before you plunk down your money. Brokers aren't an essential part of your online transactions, they only set you up with a bank and then step out of the picture. They make their money in one or more ways: a finder's fee from a bank (which you might see in the form of an application fee, a percentage of the hefty fees you'll pay for a card-swipe machine or PC software, and perhaps an up-front fee). They will place you with a bank that is able to take someone with your credit history, and that is comfortable with Internet transactions.
Transaction Processing Clearinghouse
When you finally get set up with a bank you'll find that they probably contract out processing the credit card transactions to a transaction clearinghouse. When you get ready to process the purchase made on your online (or physical) store, they're the people at the end of the modem who tell you the credit card number is valid and doesn't have its credit limit maxed out. You don't usually pay the transaction clearinghouse directly (though they may deduct bank fees and make net deposits), but you'll have a lot of interaction with them. Examples: First Data Corp. and First USA.
Hardware/Software Gateway to the Clearinghouse
The final piece is a gateway that connects you to this transaction clearinghouse. Nearly gone are the days of paper processing, nearly everything is electronic now. There are three common gateways:
Cardswipe machines. Next to nearly every cash register in the country reclines one of those gray flat boxes that the clerk swipes your card through (and sometimes wipes it off and swipes it through again). Examples: VeriFone Tranz, etc. But these machines aren't too helpful for Internet businesses, where you don't have the customer's card to swipe; you'd have to get pretty good with the keypad. Fortunately, there are some other options.
Desktop Software. Many businesses don't ever see the customer's credit card. They get the credit card number over the phone, via mail, or over the Internet. Every day or two, the merchant enters the credit card numbers and transaction amounts in special software, and transmits that list over a modem to the clearinghouse designated by the bank. In a short time, the clearinghouse responds with a list of "good" cards, and a list of "bad" ones. The merchant then sends a message back to accept the transactions for good cards, and frets about merchandise that went out the door with a "bad" card. Of course, if you're wise you just don't ship until you've run the credit card transactions. Examples: ICVerify, PCAuthorize, MacAuthorize. This solution works all right unless you have a large volume of orders. It also requires you to rekey data from each order into your computer, which can get time-consuming, and introduce errors.
Real-time Website Gateways. Finally, there are several sources of gateways to the processing clearinghouse which can check the customer's credit card while he's still online. In some cases the gateway requires a special set-up by your Internet Service Provider (CyberCash); others employ Internet connections to a service bureau gateway. These various gateways provide a bridge from your website to a completely different modem channel to check the credit card in real-time, a rather complex procedure if you were to try to do this yourself from scratch. However, several of these gateways are pretty easy to get set up. Beware: while standard HTML forms can accommodate such a gateway, not all shopping cart programs can do so. Therefore, if you wish to use a real-time gateway, make sure all the pieces fit before you purchase. Examples: Anacom Merchant Services SecurePay, Online Analysis SocketLinks, CyberCash, VeriFone vPOS, and others.
Costs
How much does all this cost? That all depends. You can save a good bit of money by careful shopping. A couple of rules of thumb: assuming you have decent credit yourself, your bank can probably give you the best deal. When you go through a broker, you've just introduced another person who needs to be compensated, and you might end up paying a higher rate to a bank that doesn't know you well already. However, a good reliable broker may just save you a lot of time shopping and putting some of the pieces together, especially if your own bank isn't Internet-savvy.
What does it cost to set up? Figure on spending $500 to $1,500 and you'll be in the right ballpark.