Essentially, merchant services entails processing credit card transactions on behalf of merchants. In terms of transaction flow, the process begins when a consumer purchases items from a merchant using a credit card. The merchant can transmit the transaction data to acquiring banks in a number of different ways, from standard phone line terminals and IP terminals to payment processing gateways and processing software.
After the acquiring bank routes the transaction through an association such as Visa or MasterCard, the transaction arrives at the issuing bank, which approves or denies the charge. If the transaction is approved, the acquiring bank receives an authorization code and the customer may be prompted to sign a receipt of purchase. At that point, the customer is now obligated to pay back the issuing bank at a later date. If the charge is denied, another payment method must be used.