How are Credit Cards Processed?

Credit cards make shopping a pleasurable and easy experience. However do you know how are credit cards processed? Read on to learn about credit card processing.
| Saturday, November 22, 2008
Credit cards have greatly facilitated transactions and have allowed people the pleasure of shopping without cash. With a credit card a person can shop within a certain limit of credit allocated to him. Credit card processing is done so that the merchant can later receive his dues for the particular transaction. In processing of credit cards the information of the card is recorded through a manual entry or then through a virtual terminal, card imprinter or a point of sale terminal.

The procedure through which credit cards are processed involves parties such as the cardholder who is the owner of the card and uses it to make the purchase. The shop or business accepting the card for the transaction is another party and the financial institution that is responsible for providing the credit card processing services is the third party and is called as acquirer. Following is a brief description of processing of credit cards:
  • To start with the owner of the credit card makes a purchase and pays for this purchase through submission of the card. The merchant then forwards or submits the details of the transaction to the acquirer. Verification which is the most important aspect of a credit card transaction is done by the issuer through the acquiring party and this happens instantly. The verification involves checking the validity of the card number and the amount of the transaction.
  • Once the transaction is authorized it is stored within a batch and the merchant then sends this to the acquirer who receives the payment at the end of the day. The acquirer in turn sends the transactions through a credit card association. The issuer is then debited for the payment and the acquirer is credited.
  • After the acquirer receives the payment the merchant is paid. The merchant receives an amount that is the transaction amount minus the discount rate. This discount rate is a fee that he merchant pays to the acquirer for processing of the transaction.
This entire process spanning from authorisation to the funding of the amount takes around 3 days. Ordinarily a POS terminal, and credit card processing software is needed. If less than 10 transactions are processed in a day then all that is needed is a telephone line. A merchant account is a contract that allows a party to associate with an acquirer and the acquirer provides for credit processing services. For online processing of credit card transaction a website is needed along with a hosting service and a completely secure server with a certification. Shopping cart software is also needed for online processing of credit card numbers.

The biggest advantage of credit cards is that customers get multiple options for payment and a wider range of customers are introduced to the business. The cash flow is also improved because of credit card processing. Purchasing online with credit cards also allows for introduction of various value added services such as gift cards and gift points and this can help in increasing the volume of shopping and thereby increase the revenue and profits of the business.

Although use of credit cards is convenient and easy for shopping online or at stores, the risk of credit card frauds is constantly on the rise. Keeping this thing in mind many credit card companies have launched what is called a virtual credit card or a temporary credit card number. You just have to fill a your virtual card with a specific amount and shop using the VCC number. This way your original credit card number is always secure and you do not have to worry about getting duped. Further virtual credit cards expire if not used within 24-48 hrs of their creation.
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