Credit Card Processing: The Working Mechanism Behind the Whole course of action

Credit Card Processing: The Working Mechanism Behind the Whole course of action




Having the intimate knowledge about the inner-workings of the bankcard system is not mandatory but then there’s no harm in knowing it. Understanding how things truly work is a good approach, as fees are incurred at times at one or the other stage. The main elements in the whole course of action include:

1. meaningful players

2. Credit card authorization

3. Credit card clearing and settlement

Credit card processing sets are so quick and timely that within few seconds, transaction details are transferred from the terminal to a processor. Later, this information is passed by the card network to the issuing bank. Once all this happens, the issuing back sends an authorization back to the processor via the network.

In the whole system, obtaining an authorization for a transaction remains the first step. Before the sales are deposited in the bank account of the business, it is necessary that the authorizations are settled. Settlement and authorization are the two major processes of transaction. If ever this happens a failure be it complete or uncompletely, it leads to sales not deposited or increased costs.

The meaningful Players

meaningful players involved in authorization and settlement include:

1. Customer

2. Service Provider

3. Acquiring Bank

4. Issuing Bank

5. Card Associations (Visa and MasterCard)

Let’s discuss every player one by one.

1. Cardholder: This term refers to the one who gets a credit or debit card from an issuing bank. The card is then presented to the merchants as payment for the sets or products.

2. Service Provider: Service provider is the business that is engaged in the sale of sets or products. It can also be said that it is a business that allows accepting credit in addition debit cards.

3. Bank of the service provider: It is often referred as an acquiring bank. This is because it creates and maintains accounts and enables businesses to accept credit and debit cards. additionally, these edges provide software and tools to accept promotional materials, cards and other important elements needed in card acceptance to the merchants.

4. Issuing Bank: An issuing bank provides credit cards to the customers. It is important to know that this bank is a member of the card associations. These edges pay the edges for the sales or purchases made by their cardholders. Repaying the issuing bank as per the norms of card agreement is the responsibility of the cardholder.

5. Card Associations: As MasterCard and Visa are not edges, they serve as a guardian and clearing house for their card brand. In addition, they monitor the community of ISOs, MSPs and financial institutions that work jointly to sustain credit card processing and electronic payments.

This was all about the important parameters of credit card processing. To keep transparency in the credit card processing mechanism, keeping these important points in mind is quite helpful.




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