Many business merchants accept credit card payments for the convenience of the customers. The safety factor provided by the credit cards is making it attractive for the customers to pay for any kind of products and services. The payment processing of the credit cards is done in a step by step manner and it’s a very complex process. Understanding the payment processing of the credit cards is very important in order to make the best use of the card. Moreover only when the payment processing of the credit card are clearly understood the merchant as well as the credit card holder will be aware of the loophole in the system and will take precautionary measure while using the card.
Payment processing of credit cards is done in 4 step process. The first step is the authorization. When the card holder gives the card to the merchant will request for the authorization from the acquirer. He will swipe the card or key the details of the card into the terminal and wait for authorization. When this request for authorization is received by the acquirer the payment processing begins. Acquirer is the company which is usually the bank who will carry out the payment processing of the credit cards. The acquirer will in turn send the request form to the credit card issuer to get the validity of the credit card. In the payment processing of the credit card all the 3 parties are involved to clear the payments. The credit card issuer will then check the CVV number and the card details. They will analyse if the card is genuine and also check if the holder has the limit to make the purchase.
The credit card issuer will then send a authorization to the acquirer. The next step in the payment processing of the credit cards is that the acquirer after getting the approval from the issuer will then send a final authorization to the merchant who will then clear the bill and deliver the good to the customer. These entire takes place in few seconds as everything is done through high speed terminals.
The second step of payment processing of credit cards is the batching. The merchant has to pool all the credit card transaction into a single batch. This is sent to the acquirer for payment processing. The third step of payment processing of credit cards involves the clearing of funds. For this the acquirer will send the received batch of transaction to the credit card issuer using the intermediaries called card network. Master and Visa are the card networks most commonly used.
The credit card issuer will receive the batches from the acquirer and analyse every transaction. For payment processing of these transactions they will deduct the charges for interchange and then send the remaining amount to the acquirer.
The last step of payment processing is called funding. From the money received by the acquirer some amount towards discount fees will be deducted and the balance will then be sent to the merchant as the final settlement of the payment processing.
The payment processing of credit cards is done in the above manner. The mechanism of payment processing of credit cards should be done in a systematic and synchronous manner to avoid any irregularities.
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