ShopSite Credit Card Processing in Detail

This page provides details on ShopSite credit card processing. The basic process is described in Credit Card Processing in ShopSite, but we thought we'd give you the whole story in case you're curious.

Who's Involved?

If you've only been a shopper before and never a retail merchant, you might be very surprised to know the number of parties involved in a credit card transaction.

Acquiring Bank
The bank which approves a merchant for accepting credit cards, and then collects the merchant's online payments. Some banks use Independent Sales Organizations to be the front-end of this service. Acquiring Banks are generally members of the Visa and MasterCard Associations

Visa and MasterCard are actually associations of member banks and financial institutions. The associations specify membership rules, but do not issue credit cards; the members issue the cards. American Express, Discover, and Diner's Club are single corporations and not associations, and they issue their own cards.

The cardholder is, of course, the customer - someone who an issuing bank deems trustworthy enough to extend some credit to.

Independent Sales Organization (ISO)
A third-party company that provides services to merchants on behalf of the acquiring bank. These services include merchant accounts, funds processing, and account activity reporting.

Issuing Bank
A bank or other financial institution that issues credit cards. Issuing banks are members of the Visa and MasterCard Associations.

A business that has a merchant account for accepting credit cards. Despite being called "the merchant" in the credit card industry, this term really refers to the business, not the owner (though they may be the same in the case of a sole proprietor.

Payment Gateway
A company that provides an interface between the Internet and the secure banking networks. A payment gateway authenticates the parties involved and acts as a channel for moving credit card transactions from your ShopSite store to a payment processor.

Payment Processor
A corporation that manages the process of transferring authorized and captured credit card funds between different financial accounts.


In addition to knowing who's involved in a credit card transaction, there is also a special vocabulary that you might want to be familiar with:

Authorization - The act of ensuring that the cardholder has adequate funds available against their line of credit. A positive authorization results in an authorization code being generated, and a hold being placed on those funds. A "hold" means that the cardholder's available credit limit is reduced by the authorized amount.

Capture - Converting the authorization amount into a billable transaction record. Transactions cannot be captured unless previously authorized.

Discount Rate - A small percentage of each transaction that is withheld by the Acquiring Bank or ISO. This fee is basically what the merchant pays to be able to accept credit cards. The fee goes to the ISO (if applicable), the Acquiring Bank, and the Associations.

Merchant Account - A special business account set up to process credit card transactions. A merchant account is not a bank account (even though a bank may issue it). Rather, it is designed to 1) process credit card payments and 2) deposit the funds into your (business) checking account (minus transaction fees).

Payment Gateway Fees - The fees that payment gateways charge for their services. This generally includes a monthly fee and a small flat fee per transaction. These fees may consolidated into a single bill by the acquiring bank or ISO, along with their fees.

Transaction Fee - A small flat fee that is paid on each transaction. This fee is collected by the acquiring bank or ISO and pays for the toll-free dial out number and the processing network.

Purchase Authorization Flow

These are the detailed steps required for the authorization of a purchase in a ShopSite store:

  1. A customer initiates a transaction by placing an order in a ShopSite store using a credit card.
  2. ShopSite sends the transaction information to the merchant's payment gateway. The info includes the store's identification info, the customer's name and address info, and the amount of the purchase.
  3. The payment gateway checks its database to see which acquiring bank/ISO the store uses. That information tells it which payment processor to send the transaction info to.
  4. The gateway sends the transaction information to the acquiring bank's payment processor.
  5. The payment processor examines the customer's credit card number to determine the issuing bank.
  6. The payment processor sends the customer information and transaction amount to the issuing bank.
  7. The issuing bank checks to see if the customer information is valid and if there is enough credit in the account to cover the transaction. At the same time, it verifies that the billing address on the order matches the billing address on file for the credit card (this is called Address Verification Service).
    1. If the account is valid and there is enough credit and the address is verified, the issuing bank sends an authorization code back to the payment processor and puts a hold on the funds in the customer's account.
    2. If the account is not valid or there isn't enough credit to cover the transaction or there is a problem with the billing address, the issuing bank sends a "transaction declined" message back to the payment processor.
  8. The payment processor sends the authorization code (or declined message) back to the payment gateway.
  9. The payment gateway sends the authorization code (or declined message) back to ShopSite.
  10. ShopSite displays a receipt to the customer if the transaction was authorized, or a "problem" message if declined.
  11. ShopSite records the order as "authorized" in the store's orders database.

Capture and Settle Flow

These are the detailed steps required for a transaction to be captured and settled:

  1. When the merchant clicks the Bill Orders button in ShopSite to "capture" the funds, ShopSite sends the capture information to the merchant's payment gateway. The information includes the store's identification, the transaction numbers and authorization codes that were received back from the issuing bank, and the amount of the transactions.
  2. The payment gateway checks its database to see which acquiring bank the store uses, which tells it which payment processor to send the capture request and information to.
  3. The payment gateway sends the information to the payment processor.
  4. The payment processor examines each the information for each transaction to determine which issuing bank to send it to. Remember that all of the orders were placed in the same store, but they were probably all charged to different credit cards.
  5. The payment processor forwards the information to the issuing banks.
  6. The issuing banks tranfer funds to the acquiring bank. This is called settling.
  7. The acquiring bank/ISO deposits the money in the merchant's local account, minus the discount rate and transaction fee. This process could take from two days to two weeks, depending on the policies of the acquiring bank/ISO.