Credit card processing seems like magic, but there are a few steps that happen between the time a cardholder swipes his credit card and the merchant actually gets paid for the transaction.
Authorized or Declined
When the credit cardholder makes a purchase, they swipe their credit card through a terminal. The terminal contacts the merchant’s bank via internet or phone to get authorization for the credit card purchase. The bank, also known as the acquirer, checks with the credit card issuer to make sure the credit card number is valid and that the amount is acceptable. Then, the credit card issuer verifies the transaction and sends authorization. If the merchant uses an online system, the cardholder will be notified immediately if their credit card is declined.
Reasons for a Declined Credit Card
The merchant doesn’t get an explanation or reason for why a credit card is declined. Instead, the cardholder must contact their customer service to find out why their transaction was declined. Typically, declined transactions happen because the transaction was over the credit limit, a credit card payment was late, or the credit card has been used too many times that day.
Internet Payments
Internet payment processing adds an extra step because the credit card information must be encrypted to reduce the likelihood of theft. The customer inputs their credit card information into a web page and presses a “Submit” or “Send” button. Before the cardholder’s information is sent to the acquiring bank, it’s encrypted and passed through a payment gateway (e.g. VeriSign or Authorize.Net). The authorization is also encrypted before being sent back to the internet application.
Submitting Transactions for Payment
Although credit card payment processing is instantaneous for customers and for merchants, payment doesn’t happen immediately though. The credit card terminal stores all the credit card transactions made for that day. At the end of the day, the merchant prints a batch of credit card authorizations and sends them to the bank to be processed.
The bank sends all credit card authorizations to credit card network – VISA, MasterCard, American Express, or Discover – for payment. The credit card network acts as a middleman who pays the bank and debits the account of each credit card issuer. Note: American Express and Discover act as both the credit card network and the credit card issuer, while VISA and MasterCard are issued through other banks, like Capital One and Bank of America.
If a credit card has been used to buy goods or services that won’t be delivered until later, the transaction won’t be placed for payment until the time of delivery.
Payment is Made
When the bank gets payment for the batch of transactions, they send payment to the merchant. Payments may be made on a periodic basis, like weekly or monthly.
Merchants have to pay the acquiring bank, the credit card network, and the credit card issuer for their credit card transactions. The processing fees, which range from 2% to 5% of each transaction, are typically deducted from their payment amounts. Merchants may pay a minimum monthly fee if their processing fees fall below a certain amount. Credit card payment processing takes between one and five days.
{ 2 trackbacks }