Virtual Credit
Weighing The Options
By Godfrey Nolan
Maybe I've been looking in the wrong places but to date, most of the e-commerce articles I've come across have suffered from a distinct lack of a practical dimension. This article will aim to fill that gap. To address the problem, we need to understand how credit-card transactions work, and how they are being mapped onto the Web.
Traditional Credit Transactions
Before you can accept credit cards you need a merchant account from a financial institution. This can be either a bank or an independent sales organization that acts on behalf of the banks. It's known as your acquiring bank and it determines what types of credit cards you can accept.
The two other players in the game are the issuing bank and the processing network. The processing network has traditionally been a company such as Verifone, famous for the credit-card readers in stores, gas stations, and supermarkets. The issuing bank is the consumer's representative in the transaction, having offered them credit in the form of plastic cards with magnetic strips.
Credit-card transactions themselves are a two- or three-part process depending on whether they are immediate-sales transactions or book-and-ship transactions. In the first case, authorization and fund capture are immediate (within 24 hours), and settlement occurs between authorizing and acquiring banks at a later time. In the case of book-and-ship transactions, the authorization and fund capture are separate processes. Part one consists of acquiring authorization from the issuing bank via a card-processing network (see
