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Q: Question on Merchat Account Processing/credit cards ( Answered,   0 Comments )
Subject: Question on Merchat Account Processing/credit cards
Category: Business and Money > eCommerce
Asked by: johnny50-ga
List Price: $120.00
Posted: 21 Nov 2006 12:44 PST
Expires: 21 Dec 2006 12:44 PST
Question ID: 784579
I'm looking to start my own processing company.  Not a 3rd party
reseller. I actually want to be the processor that connects to the
bank.  How do I go about doing this?  Good details wanted.
Subject: Re: Question on Merchat Account Processing/credit cards
Answered By: umiat-ga on 17 Dec 2006 10:01 PST
Hello, johnyy50-ga!

 It sounds as though you are interested in becoming a merchant account
provider which serves as an intermediary between the bank and the
merchant to process credit cards. You will need to develop a
relationship with a bank and an Independent Service Organization in
order to offer these services. I have found very little information
online regarding this process, primarily because each bank will have
its own requirements for this type of relationship. Therefore, in
addition to the general material below, I believe you will need to sit
down with someone at a local sponsoring bank to inquire about forming
a card processing contract with them.

How to Become a Merchant Account Provider

"Merchant account providers help provide accounts to merchants. Banks
are the most well known providers of merchant accounts. Also, there
are third party merchant account providers that are extremely popular
with international and Internet merchants. To become a successful
merchant account provider, there are a few basics one needs to

"The merchant account provider requires the help of at least two other
entities to grant a merchant account to a client. One is an ISO
(Independent Service Organization) and the other is the underwriter.
An ISO normally comes from the local debt collection. Their job is to
verify the risks that come with granting the merchant account. They
look at the operation of the applicant, as well his history and
assets. Often, ISOs are also merchant account administrators, with the
power to liquidate the merchant account in the event of something
going wrong. The underwriter is typically a bank. Their responsibility
lies with the cardholders. They reassess the website, the merchant's
operations, and the report provided by the ISO. It is the underwriter
that actually grants the merchant account to the applicant.
Underwriters often request superficial and even structural changes to
the merchant's website to protect the latter's interests."

"The merchant account provider should be adept in dealing with
high-risk accounts. These businesses include pharmacy accounts; adult
accounts; travel accounts; telemarketing accounts, etc. They are high
risk in nature because of their potential for unnecessary charge
backs, legal violations, or they can simple give the merchant account
provider bad publicity for accepting their kind of business."

"Today, it is essential for someone wanting to become a merchant
account provider to have some experience and knowledge with e-commerce
doctrine, terminology and workings. Proficiency with computers is

From "Become a Merchant Account Provider," By Alison Cole

Major Entities in the Credit Card processing Chain

Sponsoring Bank

"A Sponsoring Bank is a Chartered Bank or S & L that has obtained
membership in Visa or Master Card in order to allow a Processor access
to the Visa and Master Card networks ( in order to process these types
of transactions). Since only a Bank may join Visa or Master Card, many
Processors make deals with a Sponsoring Bank in order to gain access
to the Visa and Master Card networks. Because these Sponsoring
agreements are usually like a partnership, the line between the
Sponsoring Banks and their Processors is not always clear; sometimes
the partnership is referred to by the name of the bank, while other
times they are referred to by the name of the Processor."


"A Processor is the company that actually routes an Authorization
Request from a Point of Sale device (such as a Verfone credit card
terminal) to Visa or Master Card, and then arranges for Fund
Settlement to the merchant. Such processors are traditionally accessed
via direct dial out modems connecting to their system. Processors need
to have a Sponsoring Bank in order to gain access to the Visa and
Master Card networks. When a Processor or other entity has made such
an arrangement with a Sponsoring Bank to resell their services, they
are called an Agent of that bank. Any entity that sells Visa or Master
Card must disclose themselves as an Agent of their Sponsoring Bank.
Such sales entities may be a Processor, or an ISO/Agent of the
Processor or Processor/Bank alliance. Many banks are also their own
processors, while other banks will use a Third Party Processor to
handle this processing for them (in their own brand name in some

Third-Party Processor

"A Third Party Processor is an independent processor that is
contracted with by a Bank or Processor to conduct some part of the
transaction processing process. Some of these Third Party Processors
specialize in running and hosting networks of Point Of Sale (POS)
terminals connected to their Host via dial out modem; they produce the
software in the POS terminals as well as in their host, and route
authorization requests to Visa or Master Card as needed (MAPP, MDI,
FDR, for example). Other Third Party Processors specialize in the
Settlement of credit card transactions with Visa and Master Card so
that merchants can be paid (FDR for example). In the world of Internet
Credit Card Processing, the Secure Payment Gateway Provider is another
type of Third Party Processor."

Types of Merchant Account Providers

Direct Processor  -  Direct processors, such as banks, offer direct
access to the credit card processing centers. The completed order form
is transmitted from your site through a "payment gateway," which is a
secure server that captures the credit card information, and then
passes it along to the bank. Banks, in general, are cautious about
granting credit card merchant status to any business that doesn't have
the large majority of transaction slips personally signed by the
cardholders. That's why many banks will charge a hefty deposit of
several thousand dollars in addition to a minimum monthly fee, whether
you have any sales that month or not.

A merchant account provider may be a third party processor, ISO, MSP,
bank, association or financial service provider (eg American Express,
Discover). Each merchant account provider represents a bank and offers
a variety of products and services that enable you to accept credit
cards as payment from customers.

"A third party company providing merchants with merchant accounts.
Providers generally have an established relationship with a number of
banks that operate merchant accounts. Providers either has their own
processing system to process and validate transactions, or they act as
resellers of third parties' processing systems.

 "A third-party processor is a company that provides a variety of
bank/merchant services including billing, reporting, customer service,
authorization and settlement services on behalf of the acquiring
financial institution. Examples of third-party processors are
Paymentech, First Data Corporation (FDC), Global Payment Services
(GPS), NOVA Information Systems (NOVA), Vital Processing Services
(VITAL), etc."


 The following question and answer might provide you with some
additional insight into the Merchant account processing relationship:

See "How Can I become a Merchant Service Provider?"

 As evidenced in the above example, it is essential that you approach
a bank with whom you want to form a processing relationship so that
you can find out exactly what they require.


 I hope this helps!



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