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Steps Involved in Credit Card Processing

In a globe that has gone highly digital, thousands of credit cards are processed each day as a result of business exchanges. A credit card processor can be described as a third player which ensures that money flows smoothly from the credit card holder’s account to the merchant’s bank account. The key players in any credit card transaction are the cardholder, the merchant, the merchant bank (acquiring bank), the cardholder bank (issuing bank) and the card associations.

Banks can issue cards to their clients (thus called cardholders) which can be used for the acquisition of goods and services. The merchant is the owner of the business. This merchant permits clients to pay for the various goods and services via credit cards The merchant is a customer of the acquiring bank that allows him to receive credit card payments. The merchant bank issues the business person with the means to conduct sales through credit cards. The issuing bank, on the other hand, is also called the cardholder bank. Its role is to provide customer with the credit cards. It is a member of the relevant card association. Card association act as intermediaries between the issuing banks and the acquiring banks. They ensure timely and safe transfer of funds from one bank/ account to the other.

Before the trade can be sanctioned by the merchant; the credit card has to be authorized first. When making the purchase, the cardholder hands the card to the merchant who has the means to seek authorization from the acquirer bank. The authorization code which is then sent to the merchant by the acquirer bank seeks to confirm that there is enough credit for the transaction to go ahead. Where more than one transaction was authorized by the acquirer bank; the merchant thus sends a list of all the transaction to the same bank in a batch.

Through the card network, the issuing bank receives the previously approved batch to request for payment during the clearing stage. The funds are then transferred to the merchant bank by the card association. The acquiring bank collects the interchange fee from the transaction and then transfers the rest of the funds. The issuing bank and the card associations share in the interchange fees as per their agreements.

The funding stage marks the last process of card processing. The acquirer bank then subtracts the appropriate discount fees and then pays the remaining sum to the merchant. The figure that is finally sent to the merchant as payment is, therefore, less than the initial price for the goods and services as the interchange charges and discount fees are subtracted from it. This process marks the completion of the credit card processing with all the key players of the transaction satisfied.