Steps Involved in Credit Card Processing
Thousands of credit cards are processed across the world on a daily basis. The credit card processor is basically a third party that sees to the necessities of the processing procedure for the credit card transactions that takes place between the merchants, the providers of the merchant account, and the credit card issuers. In essence, therefore, the main participants in a credit card transaction are the card associations, the cardholder bank (issuing bank), the merchant bank (acquiring bank), the merchant, and the cardholder.
A cardholder is a person who has a credit card from a bank that issues such cards, and then uses this card to pay for goods and services. The individual who offers services and sells the goods is referred to as the merchant. This business owner has systems that facilitate payment through client credit cards. The acquiring bank is the bank of the merchant that offers services for credit card payment. This acquiring bank furnishes the merchants with the software and equipment which enable them to accept card payment. The two phrases, cardholder bank and issuing bank, are often used to mean the same. Customers obtain credit cards for purchases from these cardholder banks. It is a member of the relevant card association. Card associations are the arbiters between the acquiring bank and the issuing bank. These card associations work to ensure that funds are moved between these banks in a safe and timely fashion.
Before the trade can be sanctioned by the merchant; the credit card has to be authorized first. The seller asks the buyer for their credit card then swipes it into a special machine that allows the acquirer bank to authorize the trade. In the authorization process, the merchant receives a code of authorization from the acquirer bank which is an indication that there is sufficient credit available for the transaction. In case more than one purchase was authorized by the acquirer bank, the seller then sends the list of the previously approved transactions to the acquirer bank in a batch.
Through the card network, the issuing bank receives the previously approved batch to request for payment during the clearing stage. The payment is then remitted from the cardholder bank to the merchant bank by the card association. The interchange fees are deducted from the money by the merchant bank before it is transferred to the merchant/ business person. The issuing bank and the card associations share in the interchange fees as per their agreements.
The last stage is the funding phase. Before finally transferring the money to the merchant, the merchant bank charges its discount fees. The sum sent to the merchant at the end of the credit card processing is hence the result of the subtraction of the interchange and discount charges. After all the above-highlighted processes are completed, the entire procedure of credit card processing is finally brought to a close.