Understanding more about Credit Card Processing
Thousands of credit cards are processed across the world on a daily basis. A credit card processor can be described as a third player which ensures that money flows smoothly from the credit card holder’s account to the merchant’s bank account. 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 merchant is the owner of the business. This business owner has systems that facilitate payment through client credit cards. The acquiring bank is the bank of the merchant that offers services for credit card payment. The merchant bank issues the business person with the means to conduct sales through credit cards. 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. The link between the merchant bank and the cardholder bank is the card association. The role of the card associations to see to the correct transfer of funds between the merchant and cardholder banks.
Before the trade can be sanctioned by the merchant; the credit card has to be authorized first. 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 funds are then transferred to the merchant bank by the card association. The interchange fees are deducted from the money by the merchant bank before it is transferred to the merchant/ business person. According to their terms of trade, the interchange fee is divided between the card associations and the merchant bank.
The funding stage marks the last process of card processing. Before finally transferring the money to the merchant, the merchant bank charges its discount fees. The figure that is finally sent to the merchant as payment is, therefore, less than the initial price for the goods and services as the interchange charges and discount fees are subtracted from it. This process marks the completion of the credit card processing with all the key players of the transaction satisfied.
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