In this article, we will share with you full details about the credit card process and processing work. Entrepreneurs and managers are frequently astute shoppers. That makes sense given that you frequently assess the numerous goods and services required to keep your firm operating efficiently.
You can get paid by accepting credit cards. Therefore, you will need to choose a credit card processing business.
It is a crucial business decision because credit card processors are significant partners in addition to their main function of processing payments.
Even if you don’t become an expert, understanding how credit card processing works will make you a wiser customer.
We’ll examine the players and their duties in order to comprehend how payment processing functions.
Also read: How to Get a Business Credit Card with an EIN Only
Who are the participants in transactions using credit and debit cards?
An account holder acquires a credit or debit card from an issuing bank and then uses the card to make purchases.
Any form of business that takes credit card process payments in exchange for products or services is referred to as a merchant.
Merchant accounts are created and maintained by a merchant bank. Businesses can accept deposits from credit and debit card payments thanks to merchant banks.
Companies that handle credit and debit card transactions are known as payment processors. To enable card payments, payment processors link retailers, merchant banks, card networks, and other parties.
The banks, credit unions, and other financial institutions that issue debit and credit cards to cardholders via card associations are referred to as issuing banks.
Visa, Mastercard, Discover, and American Express are the four card associations. In addition to performing other crucial duties, the card organizations also establish interchange rates, and qualification standards, and serve as a mediator between issuing banks and acquiring institutions.
Also read: What is a merchant account? Do you really need one?
Credit card processing: In Motion
∆ Three unique procedures are used in the credit card process:
The authorization process for credit and debit cards first.
- In order to purchase goods or services from a merchant, the cardholder must provide their card (by swipe, tap, insert, or another secure means, such as contactless or by entering the card number online).
The request may come through a credit card terminal or point of sale system at a physical store, a gateway for an eCommerce website, or through the acceptance of mobile or in-app payments.
- The retailer contacts their payment processor with a request for payment authorization.
- Transactions are submitted by the payment processor to the appropriate card association before being forwarded to the issuing bank.
- The issuing bank receives authorization requests that include details like the expiration date, CVV, and AVS validation.
- The transaction is either accepted or rejected by the issuing bank. Transactions may be rejected owing to insufficient funds, a lack of credit, the closure or expiration of the cardholder’s account, a past-due payment, or other circumstances.
- The card association, merchant bank, and ultimately the retailer receive the approval (or refusal) status back from the issuing bank.
Also read: Best Small businesses credit card processing
Credit card process: In a nutshell, that is how the credit card authorization procedure works. A few seconds are all that it takes to authorize a card.
∆ Let’s now examine the settlement and funding process for credit cards. In essence, this section describes how the merchant receives payment from the credit cards they accept.
- Batches of authorized transactions are sent by retailers to their payment processors.
- The payment processor sends transaction information to the card associations, which then coordinate the necessary debits with the network’s issuing banks.
- The sum of the transactions is charged to the cardholder’s account by the issuing bank.
- The relevant amounts for the transactions are then sent by the issuing bank to the merchant bank, with fewer interchange fees.
- Money is deposited into the merchant account by the merchant bank.
Also read: Credit card processing and payment gateway
The settlement and funding procedures that once took days are now nearly often completed overnight, assisting in the speedy payment of merchants.
The streamlined credit card process looks like this. To know more about credit card processing, contact us at YMSR.