How Does a Credit Card Authorize System Work
Most everyone has a credit card these days and many people may wonder how the actual credit card process works. You probably know you slide a piece of plastic through a machine and get a new item. You then get a bill to pay at the end of the month, but there certainly has to be more to it than that, right? Of course there is! There is a whole step by step process that a transaction must go through called a credit card authorize system.
When a consumer uses and scans their credit card at a retail location, the credit card authorize system comes into play. The credit card user gives the retailer the permission to take money off their card when they sign a credit card, enter a PIN number for a debit card, or even use verbal verification if the purchase is made over the phone. This is known as a “card not present transaction” or CNP.
This electronic verification is one of the most important aspects of a credit card authorize system as it is basically giving you permission to take your customers payment. When the verification comes through, you will know that the card is a valid credit card and there are funds on the card to cover the monetary transaction amount. The verification is typically done by the point of sale (POS) system, usually your cash register or credit card terminal, if that is the case. The data from the card is transferred by reading the magnetic strip on the back of the card with a special reader inside of the POS system.
If there is no card present, a CNP transaction, to be safe when starting the credit card authorize system of steps, the merchant should ask for the security code on the back of the credit card, the date of expiration and the billing address just to make sure this is a valid card and the authorized credit card user making the purchase.
Once all of the information has been sent electronically, the merchant must wait, usually just a matter of seconds, for a response to come back from the payment processor. This response from the credit card authorize system will tell the merchant if the card has been accepted for payment or if it has been declined. If the card has been declined, the credit card authorize system will tell the merchant why, i.e. lack of funds. Once the consumer gets their item or service, the transaction, as far as they are concerned, is over and they only need to pay their invoice at the end of the month.
For the merchant, there is one additional step in the process called the batch transfer. Depending on the volume of the retail store, the batch will be sent daily, weekly or monthly to the payment processor. All of the credit card transactions you have done as the merchant are being held in a special account and will not be released to your merchant account until the batch transferred. Once there, you are free to use the money in any way you wish.
