Steps Involved in Credit Card Processing
In everyday business transactions of the world, numerous credit cards are processed. The credit card processor is basically a third party that sees to the necessities of the processing procedure for the credit card transactions that takes place between the merchants, the providers of the merchant account, and the credit card issuers. The key players in any credit card transaction are the cardholder, the merchant, the merchant bank (acquiring bank), the cardholder bank (issuing bank) and the card associations.
The cardholder is the buyer who uses the credit card that has been issued to them by their respective banks for various purchases. The individual who offers services and sells the goods is referred to as the merchant. This business owner has systems that facilitate payment through client credit cards. The merchant is a customer of the acquiring bank that allows him to receive credit card payments. The acquiring bank provides software and equipment to the seller that permit credit card enabled sales. Another name for the issuing bank is the cardholder bank. Its role is to provide customer with the credit cards. The cardholder banks have special agreements with card associations. Card associations are the arbiters between the acquiring bank and the issuing bank. These card associations work to ensure that funds are moved between these banks in a safe and timely fashion.
The authorization of the transaction marks the first stage of credit card processing. The merchant receives the credit card from the buyer (cardholder) and then uses the provided software and equipment to obtain a green light from the acquirer bank. In the authorization process, the merchant receives a code of authorization from the acquirer bank which is an indication that there is sufficient credit available for the transaction. In case more than one purchase was authorized by the acquirer bank, the seller then sends the list of the previously approved transactions to the acquirer bank in a batch.
During the process of clearing, the batch is sent in request for payment from the issuing bank via a card network. The payment is then remitted from the cardholder bank to the merchant bank by the card association. The merchant bank subtracts the interchange charges before accepting the rest of the incoming funds. The issuing bank and the card associations share in the interchange fees as per their agreements.
The final procedure in card processing is the funding stage. The acquirer bank then subtracts the appropriate discount fees and then pays the remaining sum to the merchant. The sum sent to the merchant at the end of the credit card processing is hence the result of the subtraction of the interchange and discount charges. With this, the process of credit card processing is thus complete.