You may have noticed that it takes a few seconds to process a credit card. However, credit card processing is a complicated process that involves many steps to complete. The information has to flow from the cardholder to the cardholder’s bank through a merchant’s processing company and the credit card network. The bank either approves or denies the transaction and transfers the information in reverse through the same chain to the merchant. This article breaks down credit card processing into six steps.
1. The Consumer Makes a Purchase. A consumer visits their favorite grocery or department store and makes a purchase. The cardholder swipes their card and purchases goods. The card’s information will be sent through processing to verify funds and finalize the transaction.
2. Merchant Accepting a Payment. The next part of a purchase with a credit card involves the merchant taking payment. This part of the purchasing process can be completed in a couple of different ways. The first way involves receiving the payment physically in the store. The second way is by making a purchase online. When making a purchase online, the information is sent through a gateway processor and then funds are delivered to the merchant.
3. Credit Card Processing. The information from the merchant is transferred to the credit card processor, which is then responsible for routing the data to various stakeholders such as the merchant, credit card company, and banks.
4. The Credit Card Network. The card operates via one of the major credit card networks. The most popular credit card companies are MasterCard and Visa, however American Express and Discover cards are also very popular. When the network receives the payment information from the processor, it sends the information to the bank for payment.
5. The Consumer Bank’s Role. At this point, the cardholder’s bank can accept or deny payment based on the customer’s credit card balance and if there are enough funds to cover the purchase. It is at this point in time that the bank checks for fraudulent activity. The bank can deny or accept a purchase based on concerns over fraud or if a customer does not have enough credit to cover the transaction. Major credit card networks provide zero liability for unauthorized charges, however, if your credit card is not offering $0 fraud liability, you may be liable for a charge. Take a look at the list of the best cards by features and issuers.
6. Paying the Merchant. The last step is paying the merchant for the goods purchased. Once the consumer bank approves the request for payment, the purchase is made complete and the funds are then deposited into the merchant’s account.
While making a payment in a store or online is the most common way to use your credit card to make a purchase, many companies are now able to accept payments via mobile phone. Since mobile phones are more popular than ever and they allow people to accept payments from anywhere, more people are using mobile credit card processing to settle their purchases and invest in new products. If you are a business owner, you may want to consider this option, especially if you set up shop at trade shows or other public gatherings.
