credit card processing
July 13th, 2018

Pause For A Few Minutes & Explore The Inside World Of Credit Card Processing

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Credit Card Processing, a matter of just a few seconds! But what about the complex picture that works behind in multiple steps? Ever thought about it? Or tried understanding it but got confused and left in the middle assuming it’s not your job? Well, dear friend, it may not be a job but is a right you must possess. When paying a certain amount out of your salary, you must know the whole cycle of the process. Agree? Let us take you behind the stage scenes then…

How Credit Card Processing Works?

It works in six steps!

Primary aim of credit card processing is determining whether or not a purchase has the funds to be completed. An average of 15 seconds is taken for transactions with an EMV chip credit card to complete.

1. Consumer: Processing begins on the customer level. The cardholder swipes and dips their card or provide their payment details to the merchant.

2. Merchant: Now the merchant collects and accepts the payment details. There are two ways to do this – accepting the payment in the so-called card present transactions, something that takes place at a storefront. Another way is, online mode for card not present transactions. Here, merchant uses an online gateway to take payment from the customer.

3. Processor: Credit card processor collects the information and transfers the data on other stages along with easing communication among different parties. As far as their main role is concerned, it is sending payment details to the card network.

4. Card Networks: Customer’s card operate any major credit card network; however the most common ones are Mastercard and Visa. After receiving payment information from the processor, the network passes it to the customer’s bank.

5. Consumer Bank: Now comes the turn of cardholder’s bank, which receives the payment request. Also, it verifies if the cardholder has the needed funds or say, credit to complete the purchase. After confirming that the customer has apt funds and purchase isn’t fraudulent, they shoot a message back via the networks and via the credit card processor to enable the transaction to proceed.

6. Back To The Merchant: This is the last step and is the message that the payment has been requested or denied through the same channels it did to get to the cardholder’s bank. In case, the transaction is handled personally, this corresponds with a message like “Approved” or “Declined”. Upon assuming the transaction is cleared, the merchant provides the customer with the asked product or service.

No, it’s not complete yet!

At this point, the funds have not been released, which means the transaction is not settled. Being a separate process, it takes several days, as it depends on the card network involved. However, both Mastercard and Visa settle faster as compared to American Express.

The Parties Involved

Below are given the roles and responsibilities of the four active players of the game.

Merchant Bank/Acquiring Bank: This refers to the bank with which the business or merchant holds their funds. Though it serves as the processor at times, small business owners usually partner with third party non-bank processors. Merchant banks setup the business owners with card readers and equipment to accept cards. Besides, they deposit funds into the account of the merchant after a credit card sale happens.

Credit Card Processor: Processors are the messengers that smoothen the communication between the merchant and the cardholder’s bank. They secure the payment data and ensure that all transactions abide to the rules of the Payment Card Industry Data Security Standard (PCI DSS). A fee is charged from the merchants in exchange of providing this service.

Card Network/Card Associations: To transport data between the issuing bank and the merchant, card network works with the credit card processors. The network is also responsible for setting interchange and assessment fees by the network. Though they set the fees, they don’t collect all of them. Interchange fees are passed onto the issuing bank. Networks collect the much nominal assessment fee which is just a fraction of the interchange fee.

Consumer Bank/Issuing Bank: This is customer’s bank and is the one that gives them the credit card they use. This bank determines if the cardholder has the adequate funds to complete a transaction, and then to release the funds, so as to allow the transaction to settle. According to the type of card issued by the consumer bank, interchange fee on the cards set by the networks is either higher or lower.

Hopefully, you must have found this post informative and useful. If you want to know anything more, contact us anytime. Serving you would be a pleasure.


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