It may seem simple enough to accept credit card payments using a card machine for business. Your customer hands you a credit card, you process it, and the money is usually deposited into your account within a few days. Despite this, there is a lot more going on behind the scenes. The process of credit card processing involves several parties from when you swipe or dip the card to when the money is deposited into your bank account.
Generally, credit card processing is what allows businesses to accept payments by credit card, debit card, gift, and loyalty card. In the past, this ability to capture card-based sales required complex configurations and long authorisation delays. Every business today has a way to accept card payments in a fast and convenient way, and these card payment services are tailored to help businesses succeed.
You can make better-informed decisions about which payment solutions are best suited for your business by understanding credit card processing basics. Using a payment environment that only provides the features you require for securing, quickly, and easily processing incoming card sales can help you avoid unnecessary add-ons and fees. A credit card transaction usually involves three steps: a customer submits their credit card information to a merchant for payment, the merchant requests payment authorisation from a PSP or credit card processor, and the transaction takes place.
We will take a deep dive into the information about credit card processing in the following passage to gain a deeper understanding.
How credit card processing work?
Stage 1: Authorisation of transaction
As a payment for goods or services, a cardholder presents their credit card to a merchant. To transmit the cardholder’s information and transaction details to their bank or their bank’s processor, merchants must use their credit card machine, software, or gateway. Through the appropriate card network, the acquiring bank (or its processor) forwards the transaction information to the cardholder’s issuing bank for approval. MasterCard’s transaction information is routed among issuing and acquiring banks through its Banknet network. VisaNet is the network that routes Visa transactions.
Using the Banknet network or VisaNet, the credit card issuer receives the transaction information from the acquiring bank (or its processor). After verifying the validity of the transaction information, the balance of the cardholder’s account, and the status of the account, the issuer approves or declines the transaction. Processors and acquiring banks receive response codes from the card issuer through the appropriate network. Once the response code has been received by the merchant’s terminal, software, or gateway, it is stored in a batch file awaiting settlement.
Stage 2: Settlement of transaction
To start the settlement process, a merchant must submit a batch of approved authorisation to their acquiring bank (or that bank’s processor). It is common practice to send authorisation at the end of each business day. Acquiring banks (or their processors) should reconcile and transmit authorisation batches via interchange agreements in the relevant card associations’ networks (VisaNet or Banknet). Merchant accounts are credited with funds from sales via the automated clearing house (ACH), and processing fees are debited either daily or monthly depending on the merchant’s processing agreement. Net authorisation amounts are debited from the issuing bank’s account and credited to the acquiring bank’s account by the card association. Any interest and fees accrued on the card agreement must be repaid to the issuing bank by the cardholder.
Stage 3: Disputes regarding the transaction
After the process described above, the payment card fee may be refunded days or months later. It is possible that the goods were defective, or the charge was fraudulent/unauthorised. It is the cardholder’s right in both cases to demand the charge be cancelled. To prove that the charge was not fraudulent, the merchant may either accept a refund or enter into a dispute process. There may be additional costs associated with the dispute due to the additional resources that must be devoted between the banks.
A look at the key players in credit card processing
Customer (Cardholder): A customer is the owner of the credit card which is going through credit card processing and who presents the card for processing in first place.
Merchant: One who accepts card payments.
Payment Processors: These are companies that process credit card and debit card transactions. They are the bridge between merchants, merchant banks, card networks, and others to make card payments possible.
Credit Card Associations: Companies create and issue credit cards, such as Visa, Mastercard, and American Express. Known as credit card networks, they determine the processing rate for each sector by setting up new rules, maintaining hardware and software security and encryption, determining when and how to advertise to consumers, and so on.
Credit Card Issuing Banks (Cardholder's Bank): Credit cards are issued by these financial institutions.
Credit Card Acquirers (Merchant's Bank): Sometimes referred to as acquiring banks, they are not necessarily banks; they can be financial institutions with features similar to those of banks. To collect payments from issuing banks, they set up a merchant account, a specialised bank account used exclusively for collecting card payments.
Accepting credit cards helps your business improve cash flow and increase profitability by making it easier for your customers to pay for goods and services. In today’s world, merchants have more options than ever to help their customers accept payments as easily as possible. So as a merchant, it is possible to get confused about choosing the best service provider for your business.
Newer card readers accept swiped cards, chip cards, and contactless cards with NFC technology, such as Apple Pay and Google Pay, as well as traditional swiped cards. The use of these card payment services can help consumers save time, speed up the credit transaction process, and provide a higher level of security. Card payments are an unavoidable service that merchants must provide to their clients. Considering the merits people are more comfortable paying through their cards than cash payments.
So, it became a necessity for every merchant to rely on credit card processing. But it is impossible to choose the most suitable credit card processing service for your business without knowing surface knowledge about the process. To be successful, a merchant should at least have basic knowledge about what credit card processing is, how it works, and who is getting involved. Using the information above, you can identify the best credit card processing provider for your business based on the essential details we covered in the above blog.
COMTEX_422763258/2757/2023-01-16T10:27:29