Credit card processing: how the system works

Creating a merchant account for your business is the most sensible financial decision you make for business growth, expansion and success. Once you've set up your merchant account, you'll be able to accept credit and debit card payments from customers for your products and/or services. You can also arrange for online and mobile bank payments to accept your products and/or services.

Merchant accounts open up new avenues for your business; therefore, give your business more opportunities to thrive. But do you understand how the credit card processing system works? Are you trying to understand the complexity of the participants involved in the process and the complexity of the system?

Although it is not absolutely necessary to understand the internal and external aspects of the card processing system, your merchant service provider will meet your needs; in general, familiarity with the system is good for you.

Participant participation in card transactions

A typical credit or debit card transaction involves the following participants:

•Customer
from

  • Merchant
from

  • Payment gateway
from

  • Customer's credit card issuer
from

  • Credit card exchange
from

  • The acquiring bank's processor
from

  • Merchant's acquiring bank

Currency route from customer to merchant

Let us give an example to understand how the card processing system works.

Suppose a customer walks into a clothing store and she finds an eye bag that attracts her. She immediately went to the payment counter and paid $100 with her card.

The cashier at the merchant store accepts the cards and sets the process to exercise using a credit card machine.

• The amount of $100 is first stopped at the payment gateway, where the first authorization is paid and the amount is deducted.

• Now, $99 goes to the appropriate processor and, after a slight deduction, is submitted to the card switch for $98.5.

• Once the transaction is cleared at the exchange, it will be transferred to the issuing bank and further deducted from the issuing bank to verify the availability of funds in the customer's credit/debit card.

If the transaction is rejected, it will return to the customer from here.

• If the transaction is approved, $98 will arrive at the acquiring bank's processor, which is only one step away from the merchant's account.

• Once authorized, $97.5 will be deposited into the merchant's account, which is now processed by the merchant.

[The numbers and costs involved in card processing depend on the number of players in the process, the type of business, the type of card, and the risk factors]

In today's era, considerable payments are made electronically, especially in the context of widespread use of credit and debit cards and online fund transfers. While typical card processing requires seven participants, the entire transaction can take up to five seconds to get approval.

---

Orignal From: Credit card processing: how the system works