How A Credit Card Swiper Works

If you are a business owner who is interested in bringing a credit card swiper into your business, you may wonder how they work. Though it seems to be a relatively easy process that only takes a few seconds, there is a lot of things that go on during those seconds!

Before you even start to learn how a credit card swiper works, it is important to understand how a credit card is made. Each credit card has a magnetic strip on the back of it. This strip contains a lot of information that is able to be read by the right machine. Some of the information contained on the card includes the expiration date, the amount of money available, card usage and the actual card number. All of this is needed for a transaction to be successful.

There are four basic steps that happen when a credit card swiper is activated by sliding a credit card through it. The first is called authorization and begins with the sliding of the credit card and the amount of the sale coming together. The swiper will send the information to the acquirer, which is the bank that processes the credit card sales. The acquirer will, in turn, send the information to the issuer, like Capital One who will give an authorization for the transaction to go through.  The authorization is sent through to the acquirer then back to the merchant who will be able to complete the sale. This seems like it takes a long time, but in reality, it is done in a matter of seconds. As far as the customer is concerned, their transaction is complete. The rest is up to the merchant and a lot less complicated.

The next step in how a credit card swiper works is called batching. Each day the merchant will send information on all of the credit card sales they did throughout the day to their acquirer.  Some merchants perform batching daily, others weekly. It all depends on how many sales they do per day and how their account is set up.

The third step when using a credit card swiper is called the clearing. This is where the acquirer sends the information to the issuing bank of the cardholder, like Capital One. If it is Capital One, they will send the money and also a fee that will be taken out before it goes back to the acquirer. At the final step, called funding, the acquirer takes out additional fees based on the contract you have with them and the remaining will be deposited into your merchant account. For example, if you had a credit card sale of $100, only $97 may appear in your account. Typically the steps, from batching to funding, take 24 to 48 hours so you may not see the money appear in your account for 2-3 days after a sale.

Now that you know how a credit card swiper works, you will be a better informed customer and you will be able to choose an acquirer who meets your needs.