How does Merchant Card Processing Work
If you are one of the many millions who use credit cards, you may have wondered how merchant card processing actually works. Though you may think it is confusing, merchant card processing can actually be an easy to follow step by step process. Though the explanation given will be for credit cards, other cards are processed in much the same way.
Merchant card processing begins when a customer swipes their credit card into a card reader after purchasing goods or services. Card information can be entered manually as well. The data that is entered is sent to the merchant’s credit card processor. This is the company that the merchant has hired to take care of all of their credit card transactions. This company is also known as the acquirer.
Once the acquirer has the information from the customer’s credit card, the next step in merchant card processing is to submit the information to the card issuer. For instance, if you have a CIBC credit card, CIBC would be contacted to see if there is enough credit in the account to complete the transaction. Immediately the issuer, in this example CIBC, would remove the amount from the customer’s credit account.
At this point, merchant card processing reverses. From the issuer, the funds are released to the acquirer and the acquirer, in turn, credits the merchant for the purchase. Once that authorization is received the merchant is able to release a receipt to the customer and the payment is complete. Overall, this entire process takes seconds, though it does sound like it would take longer. It’s the power of modern technology at work.
Depending on the payment processor, however, the merchant may have to wait for days or weeks before receiving their money. They are also charged several fees in order to accept credit cards. If you ever wondered why some merchants accept credit and others don’t, it may be because of the fees. Merchant card processing is not free and though you may not know this, they are charged by their payment processor when you personally use your card. Though it may be a small amount, it is still a charge, which is why some merchants, even if they accept credit cards, they will only accept them for purchases over $10 or more. Debit cards are processed in much the same way except the money is taken and available immediately for the merchant.
As a consumer, you may be aware of new card types coming onto the market like chip cards that have micro chips installed with your information. Instead of swiping the magnetic strip, these cards have the chip embedded in them that are scanned simply by waving them in front of a reader. These chip cards are able to be made in all shapes and sizes, so it is forecast that credit cards will get smaller, including being able to be carried around on your keychain.
In years to come, merchant card processing may no longer exist at all because the chips can be designed to be embedded into your skin. A swipe of the wrist and your purchases could be paid.
