The Basics of Credit Card Processing Explained
Credit card payments are preferred by most people these days either for making online purchases, or for paying the bills at the grocery stores or even for sending gifts, or flowers to loved ones living in far off destination. However, very few of us truly understand the basics of credit card processing. Well, a lot of processing work is carried out behind the scene, which might seem confusing to many people. A step wise description of each of these steps is provided here in order to make it easier for anyone to understand how exactly credit card processing works.
When a buyer purchases something (it may be either a product or a service) and opts to make the payment using his credit card, then there occurs an interchange of credit card details or information and that of money between the cardholder, the merchant, the acquirer (which conducts the card processing service for the merchant), the card association (such as VISA® or MasterCard® who not only authorize and validate the transaction, but also fund it) and the issuer (which issued the credit card).
The entire process of credit card processing is very simple – first of all when the customer opts to make the payment with his credit card, then the card information is provided to the acquirer either through manual means or using a virtual terminal. The acquirer plays a very important role here – he confirms with the issuer that both the card number as well as the transaction amount that has been supplied is valid or not. Once the confirmation and verification is successfully complete (which usually happens immediately), then the acquirer finishes off the processing of the credit card payment at his end, by approving the purchase.
These approved credit card transactions are all stacked together by the merchant as a batch and are then submitted to the acquirer at a time (which is usually at the end of the business day). A chain of clearance and settlement events occur after this, wherein the acquirer submits the batch of credit card payment transactions to the credit card association, and the credit card association in turn, pulls out the bill amount from the issuer’s account and deposits the same amount into the acquirer’s account. Finally, the merchant receives the bill amount from the acquirer’s account.
As is evident from the whole process, the acquirer plays an important role in the whole credit card processing affair for which he receive a hefty processing fee, which is obviously levied on the credit card holder. As a result, the credit card holder ends up paying not only the basic bill amount, but also an additional processing fee. However, owing to the convenience and ease of credit card transactions, many credit card holders do not mind being charged this extra little money towards processing fee.
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