Tweet

How Credit Card Processing Works

Written by: Drew Goldbaum

Article Overview: This article provides a basic explanation of how credit card processing works - from the moment a customer hands a cashier their credit card, to the point when the merchant receives the proceeds from the sale in their business bank account.

How Credit Card Processing Works

Whenever a customer makes a purchase via credit card, their credit card information is entered, recorded and verified so that the customer can make the purchase and the merchant can ultimately receive these funds in their business bank account. The proprietor of goods and/or services either swipes the credit card through the magnetic stripe reader of a credit card terminal, manually enters the information into an Internet gateway or virtual terminal, makes an imprint of the card with an imprinter, or obtains a voice authorization for the card over the phone.

This process involves the following parties:

Cardholder: the owner of the card used to make a purchase

Merchant: the business accepting credit card payments for products or services sold to the cardholder

Acquirer: the financial institution or other organization that provides card processing services to the merchant

Card association: a network such as VISA®, MasterCard®, American Express® or Discover® that acts as a gateway between the acquirer and issuer for authorizing and funding transactions

Issuer: the financial institution or other organization that issued the credit card to the cardholder

Now that these terms have been defined, an explanation of the flow of information and money between these parties will be more easily understood. The flow of information and money between these parties (always through the card associations) is formally known as the interchange, and it consists of the following few steps:


1. Authorization
The cardholder pays for the purchase and the merchant submits the transaction to the acquirer. The acquirer verifies with the issuer (in mere split-seconds) that the card number and transaction amount are both valid, and then processes the transaction for the cardholder.

2. Batching
After the transaction is authorized it is then stored in a batch, which the merchant sends to the acquirer later to receive payment - batching out, as this is referred to, usually occurs at the end of a merchant's business day.

3. Clearing and settlement
The acquirer sends the transactions in the batch through the card association (Visa®, for example) which debits the issuers for payment and credits the acquirer. In effect, the issuers pay the acquirer for the transactions. As with authorizations, this process takes mere seconds.

4. Funding
Once the acquirer has been paid, the merchant receives payment. The amount the merchant receives is equal to the transaction amount minus the discount rate, which is the fee the merchant pays the acquirer for processing the transaction, and any other miscellaneous fees charged for the payment processing.

In the event of a chargeback (when there's an error in processing the transaction or the cardholder disputes the transaction), the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

The entire process - from authorization to funding - usually takes about 3 days. However, Merchant Card Processing from Bank Associates Merchant Services takes just 12 hours.

Related Articles
  Credit Card Processing Accounts
  Credit Card Advance Financing
  Credit Card Processing/Merchant Account Basics
  Business Credit Cards versus Personal Credit Cards
  Credit Card Processing Options for your Non-profit

Article Tags: account, card, credit, ecommerce, merchant, online, payments, processing, services



Related Forum Posts
credit cards - Nana, you can get a credit card! Get a Secured Credit Card. It's a Visa or MasterCard which is a hybrid of a chequing/credit card. There are two types: 1. You put in an amount that you would like to have as your credit limit in $500 increments as security and you you can either pay in full each month or make minimum payments 2. You can have a credit card linked to your chequing account and you can spend only has much as you have in your chequing account. I recommend #1 and they both go to improving your credit limit.
Building credit - Credit is like reputations, I suppose. Takes a lifetime to build, and only a second to destroy.
Why should I hire a virtual assistant for SEO purposes? - Do you find it hard to find time for rest because of promoting your business or your website all by yourself? Well, perhaps it is the right time for you to hire the services of an SEO virtual assistant. Virtual assistants for SEO services will help you on the process of improving your rankings within search engine results to achieve an increase in natural traffic. The higher your site in the search engine results page, the more traffic and sales conversions you will obtain. Using the services of virtual assistants (VAs) certainly is the best method to move in order immediate results and in reduced operational charges. This provides a great answer especially for a small business owner whoever company is actually considerably expanding, and the jobs have normally doubled. Here are some of the services that a virtual assistant can do for you: • Traffic Geyser • Main Street Marketing • Data Entry • Web Research • Market Samurai • Managing Facebook • Managing Twitter • SEO • Local Business Listing Robot • Traffic Revolution • Infusionsoft • Senuke • Angela’s Banklink • Linkjuicer • Blogging • SMM • Virtual Assistant • Personal Assistant • Article Writing • Spinning Article • Press release • Email Response Handling • Online Order Processing • Word Processing • Forum/Comment Posting • Social Bookmarking • Video Editor • Internet Marketing • Email Marketing • Link Building • Powerpoint Presentations • Web Development • Other Administrative Support
Marketing and PR ideas related to a Credit Organization - Hello Everybody! I would be very grateful if you suggested some PR and Marketing ideas for a Credit Organization which target market is poor public who live in village and haven't any access to the internet. Thanx in advance
Offer Credit instead - I'm not sure if ChrisH was referring to this but i'll state it more expicitly .. Charge upfront and offer a refund of double the value back in "Credit" towards your Product or Service you have for sale at the end of the event.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

LEARNING TO HAVE FUN – EVERYDAY!

Using Social Media Marketing

Starting A Set of Books

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.