Credit Card Processing – How it all works
The credit card processing system is quite complex and confusing. The players are numerous and the process is perplexed. Although, it isn’t mandatory to have intimate knowledge of the inner-workings of the bankcard system in order to find the card best suiting your needs, but still it’s a sound concept to , have a concise idea of how credit card transactions works, as Knowing the lay of the land will help you to isolate areas of possible savings!!
The Process:
Credit card payment processing takes place in two phases:
Authorization: Getting approval for the transaction that’s stored with the order and,
Settlement: Processing the sale, which includes transferring the funds from the issuing bank to the merchant’s account?
Step 1:
The process starts off with the customer and the merchant.
Step 2:
The customer makes a credit card payment, which is sent to the payment gateway or terminal via the Internet or a phone line.
Step 3:
The payment gateway/terminal routes the payment to the merchant bank’s processor.
Step 4:
The processor submits the payment to the credit card network, and once cleared, the payment makes its way to the customer’s credit card issuing bank.
Step 5:
The authorization request to the issuing bank includes the credit card number, the card’s expiration date, the billing address for AVS (Address Verification System) validation, the CVV number and the payment amount.
Step 6:
The issuing bank validates the card number, checks the amount of funds available, checks to make sure the billing address provided matches the one on file, and validates the CVV number. Depending on available funds in the customer’s account and whether the billing address and CVV are correct, the payment is either approved or declined.
Step 7:
If approved, the authorization goes back through the credit card network, the processor and the payment gateway to the merchant and the customer.
Step 8:
The payment continues to the merchant’s bank account, thus completing the transaction.
