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Credit Card Processing Explained

Credit card processing is a system that most of us do not think about in great detail. As a consumer, we are confronted by a product or service, take out our credit cards, and voila, we immediately have access (or soon will) to our purchase.

As a business, we think about credit card processing in more detail. Some businesses are hesitant to implement the service because they do not have enough information on the matter.

The following article will guide you through credit card processing.

Let’s introduce the players
There are several parties involved in credit card processing. The consumer, also called the ‘card holder,’ is issued a credit card from their personal bank or another sponsoring bank. The merchant, or seller, offers services or products that consumers can purchase with their credit card.

The merchant is enabled to accept credit cards through a merchant account, which they establish with a merchant bank (or sponsoring bank). This bank addresses the ‘net settlement amount’ from the consumer’s bank after the transaction is made. The ‘net settlement account’ is the amount of the sale minus transaction fees applied.

Take it from the top – the credit card process
- Credit card transactions can occur via an online transaction involving some method such as an online shopping cart solution or an in-store pos system . On and offline credit card information entry starts the process.

- The systems are given the credit card information and an authorization request is either granted or rejected.

- The card holder’s bank system verifies there is available money in the account to make the purchase.

- The cardholder’s account is then modified regarding future transactions to compensate for the transaction made.

- If the approval is granted, then a ‘deposit transaction’ completes the process. The merchant can then grant the card holder the items desired.

- The ‘net settlement’ account is then placed in the merchant’s bank account sometime between the same day of purchase and several days after.

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