In this article, we will share with you the processing of credit cards and payment gateway. There are numerous processes that take place, involving various parties, to ensure that the entire process happens in a matter of seconds, from the time you swipe your credit card at the merchant (shopping center or supermarket) to the time you receive a message stating a specific transaction has been made using your credit card.
The information provided here will help you better understand how money that doesn’t actually exist on your credit card travels through a number of payment processors, banks, and payment gateways before arriving at the merchant’s bank account and being deducted from your credit card account.
You will undoubtedly discover some fascinating information regarding the processing of credit cards and the numerous parties involved.
Also read: Credit card processing working!
Credit card processing: Working (Step by step)
Step 1:
In order to make a purchase, the cardholder uses their credit card at a POS terminal or online store.
You will discover a card reader if it is a POS terminal, which is nothing more than the checkout counter at a retail establishment. The information will be retrieved by swiping your card. The merchant utilizes a payment gateway to gather the data on e-commerce websites where you cannot physically use your card.
PayPal, Square, and Stripe are three well-known payment gateways, that often handle intricate data routing on behalf of the merchant and approve e-commerce transactions.
Step 2
The payment processor receives the transaction information from the card reader or payment gateway over a secure connection.
Step 3
The payment processor, who is in charge of gathering and transferring data to subsequent stages, sends the payment information to the credit card network that the card is connected to. Visa, American Express, and MasterCard are the three most widely used credit card networks.
Step 4
The customer’s bank, the bank that issued the processing of credit cards, receives the information from the card network at step 4 of the process. It also goes by the name issuing bank.
Also read: Top 10 credit card processing companies (2023)
Step 5
When the issuing bank receives a payment request, it checks to see if there is enough money in the customer’s account to complete the transaction. It also verifies the legitimacy of the purchase. After confirming that the transaction is legitimate and that the requisite funds are present, it notifies the credit card network of the transaction’s approval or denial.
The bank rejects the transaction if it discovers insufficient funds in the account, the card’s credit limit has been reached, or the purchase is not authentic.
Step 6
Processing of credit cards: The payment processor then sends the authorization response to the payment gateway or card reader after receiving it from the card network.
The card reader or e-commerce website will then show the authorization answer. The merchant will deliver the products to the consumer as soon as the transaction is approved.
Step 7
The merchant will send a batch of all authorized credit card payments or authorizations to the acquiring bank or merchant bank for settlement via its payment processor.
For the benefit of the business, the merchant bank manages credit card transactions. They provide a merchant account and deal with the banks that issue credit cards to exchange money. After subtracting the associated fees, they are in charge of putting monies into the merchant’s account.
Step 8
Following the merchant bank’s receipt of the retailer’s daily card payments, it submits a request for batch settlement to the credit card issuing bank.
Step 9
The credit card company then pays the merchant bank a settlement the following day.
Step 10
After receiving the funds, the merchant bank will withhold a portion for interchange, acquirer, and other fees before depositing the balance to the merchant’s account the same day or the following day. Settlement is the procedure, and it usually takes two to three business days.
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Credit card processing: Important terms
While attempting to comprehend the processing of credit cards, you may have run into a lot of unfamiliar terms. For your convenience, we have provided a succinct definition of each of these phrases.
- A point-of-sale (POS) terminal:
It is a physical setup used in brick-and-mortar establishments that often contains a card reader to handle debit/credit card payments. - Payment gateway:
A payment gateway is a piece of software that relays authorization requests from credit card issuing banks to the payment portal and transaction information from a payment portal, such as an e-commerce website, to the bank’s processor. In most cases, it makes bank communication easier. - A payment processor:
It serves as the intermediary between retailers and the issuing bank. It guarantees that all transactions follow the Payment Card Industry Data Security Standard (PCI DSS) rules in addition to protecting payment data and communicating it to other parties. - Credit card network:
To make communication between merchants and issuing banks easier, credit card networks and associations collaborate with payment processors. In addition, they are in charge of determining interchange and assessment costs. The most widely used credit card networks are Visa, Mastercard, American Express, and Discover.
- Issuing bank:
A bank or other financial organization that issues credit cards to customers is known as the issuing bank. - Acquiring bank:
Bank or financial institution that accepts credit card transactions from cardholders is known as an acquiring bank. It accepts transactions on the network on behalf of merchants because it is registered with a card network.
Additionally, some banks act as processors. They offer the merchant’s card readers and other necessary credit card acceptance equipment.
Also read: All you need to know about authorize net
Credit card processing: Fees and surcharges
Payment processors levy a fee called processing of credit cards fee in order to execute a specific credit card transaction. The merchant who makes use of the payment processing services is normally responsible for paying the fee.
The credit card processing charge, which is often established by credit card networks, varies from one service provider to another depending on the card network it is linked to.
The processing fee assessed to a specific shop is also based on a number of variables, including the technique used to process credit cards. You will pay less if you use a card-present processing technique, like a card reader, as opposed to a card-not-present processing method, like e-commerce websites.
Credit card: Payment Gateway
• Payments gateways are very important for e-commerce sites because they are needed to process credit cards. They safeguard private information from unauthorized parties by securely transferring it between the issuing banks and the acquiring institutions.
• As vital information, such as credit card details, and PINs, transit through gateways to numerous other parties, security is essential to their operation. Gateways adhere to the regulations and security guidelines established by the card networks to ensure proper procedures.
• PayuMoney, CC Avenue, PayU, RazorPay, Cashfree, Paypal, EBS, Coinbase, Citrus Payments, Airpay, GoCoin, BitPay, 2Checkout, PayDollar, Lay-Buy, G2APay, MasterCard Payment Gateway Services, and others are just a few examples of the many payment gateway providers.
Also read: Top payment processing companies for small businesses!
Payment gateway fee: For credit card processing
Processing of credit cards: The payment gateways charge the online retailer a range of fees. Others are predetermined, some are one-time, and some are ongoing. Let’s examine the various charges made by suppliers of payment gateways.
- Discount fee:
A charge made by the payment gateway to complete a transaction is known as a discount fee or discount rate. It often changes from one transaction to the next because it is a percentage of the money that was processed. Depending on the type of credit card used and the method of payment, the discount rates range from 1.5% to 3.5%.
The issuing bank, acquiring bank, and gateway services provider is often allotted a portion of the discount charge when using a credit card.
- One-time setup fee:
This is the first payment required when registering with a payment gateway provider. The cost of integrating the payment gateway software into the online portal is a one-time charge.
- Maintenance fee:
This is a set amount that the online retailer must pay to the service provider either monthly or yearly. Depending on the services a merchant chooses, the charge may change. Risk management, fraud management, and other services for a cost are a few of the extra services provided by payment gateways.
Also read: How to set-up credit card for small businesses?
To get more information regarding credit cards and payment gateways contact us at YMSR.
