How does credit card processing work?
September 9, 2009
They use credit cards to eat out, buy cigarettes, buy their groceries, to pay for repairs, or to tip a haircutter. The result is that all these business owners are forced to have the facility to accept credit cards
if they do not want to lose clientele. So, some form of provision for credit card processing has become a must for people even in small businesses.
Credit card processing works by the synchronized action of different agents, or parties, who have entered into different types of contracts for transacting money
without handling cash. First of these is the card issuing network which will consist of well known corporations like MasterCard Worldwide or Visa Inc. which have the power to issue credit cards and debit cards and authorize financial transactions
.
The next connecting link of the credit card processing network is the card issuer, which is the financial organization that has issued that particular brand of card to the credit card holder. The third participant is the merchant who runs the business and is ready to accept credit cards payments from the customer in return for goods or services that have been rendered.
After this is the merchant service, which may be a bank or an independent financial organization, that does the job of credit card processing for the merchant. They process the card and pay the money into the merchant’s account after subtracting the fee owed to them for providing that service. And closing the network is the credit card holder who is in a way the most important link in the money transaction network. It is to suit his convenience that merchants need to have the facility to accept credit cards. And it is him that the card issuing organizations woo to keep their business going.
When the customers pay for the purchase and the merchants accept credit cards, the transaction details are instantly passed on to the merchant services with which the merchant has entered into an agreement for credit card processing. The merchant services verify the validity of the card and other transaction details instantly and authorize the transaction. Once his merchant services, which provide him credit card processing services, approve the transaction, the merchant stores the details together with other credit card transactions of the day. The entire collection is later send to the merchant services. This is generally done at the end of each day, though there could sometimes be slight variations of timing during weekends or holidays.
The merchant services send the collection through the card issuing network which credits the amount to the merchant services after debiting the card issuers an amount as charges. The credit card processing cycle ends when the merchant services receive the money and send it to the merchant. The amount the merchant receives will be the amount the customers have paid minus the fee that he owes the merchant services for credit card processing.
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