How Does the Processing of Credit Cards Work
The processing of credit cards seems to be quite a simple process. You scan or swipe your card, you wait a few seconds, a receipt prints out, you sign it and take your purchase. Easy, right? Though it looks easy on the surface, the exact process that payment goes through is actually very technical and complicated, but it goes very quickly.
Processing of credit cards begins with the cardholder, also known as the consumer. The consumer has a credit card that has been issued to them by an issuing bank. The cardholder does not even need to have an account of any other kind with the issuing bank, the bank simply holds the person’s credit card information and issues the funds when purchases go through. The store or person who accepts the credit card as a form of payment, known as the merchant, must have a merchant account through a merchant bank or processing company. The merchant bank, in this process, is also known as the acquiring bank. These are all the players in the processing of credit cards but the way the payment goes through is a bit complicated.
The first step during the processing of credit cards starts when the card is scanned. Generally the card itself will be pulled through a reader and the magnetic strip on the back of the card will be read. This strip has all the information needed to process payment from the issuing bank to the address of the cardholder. This reader will dial into a network via a dedicated phone line and send the credit card information as well as the purchase information through to the issuing banks network. The information will be verified as long as the money is available and the information is then sent on to the merchant account of the store the consumer is shopping at.
The next step in the processing of credit cards is that the information begins to get sent back through to the issuing bank then to the point of sale system with the information on if the transaction has been approved or denied. If approved, the cardholder will sign the receipt that officially closes the transaction. They will be able to walk away with their purchase and the merchant will get the payment into their batch account. If the transaction is denied, the information will be printed out and a reason given. Some of these reasons may be lack of funds or a credit card that is expired. At this point another payment method can be used or the transaction can simply be stopped. The whole process usually takes less than 60 seconds.
The final part of the processing of credit cards depends on the merchant. After a transaction the money will be sitting in an account, but they will need to send the information to their processing company which is called running the batch. At this point the processor will take the money and start the deposit into the merchant’s account. When the money is deposited, the processing of credit cards is complete.
