Let us take a look behind the scene of a debit and credit card processing system. Entrepreneurs and business are both consumers as well, very savvy customers. They routinely keep evaluating a lot of services and products that are needed for the smooth running of their business.
Accepting Credit Cards
Accepting cards using a card processing system for hardware in combination withacard processing system for software helps you in getting paid. You do not need to turn into an expert in credit card processing for the purposes of making an informed choice. It just means that you have to dig a bit below the surface.
The Actors in the Process
· Cardholders: They obtain a debit or a credit card from a bank (aka issuing bank) and make use of the card to pay for services and goods. A cardholder is typically an individual consumer but it can also be another organization or business.
· Merchant: The term merchant here is meant to be used for any kind of business that accepts payments in the form of a card for any services that they render or goods they sell. You will typically find a card processing system for hardware here.
· Merchant bank: A merchant bank is in the business of establishing and maintaining accounts for merchants. It is the merchant banks that give merchants the ability to accept deposits that are generated by debit and credit card payments.
· Payment processors: These are companies who are in the business of processing debit and credit card transactions on behalf of the merchants and corresponding merchant banks.
· Card associations: These are the brands of cards like MasterCard, Visa, American Express, and Discover. Card associations take up the role of a clearing-house for their own card brands and act as governing bodies for processing of payments. The card associations lay down qualification guidelines and play the role of an arbiter between the acquiring banks and issuing banks.
What happens during card processing?
The authorizing process looks something like this:
· The cardholder produces his or her card details to the merchant when they make a purchase.
· The merchant then sends a payment authorization request to the payment processor. The request may be triggered from a point of sale system or a credit card terminal. They make use of a card processing system for software.
· The payment processor, in turn, submits the transaction to the card association and eventually reaches the issuing bank.
· The issuing bank may approve or decline the transaction based on the current status of cardholder’s account, debt funds or available credit and other factors. The issuing bank now relays the approval or rejection status back to the card association, merchant bank and ultimately to the merchant.
The settlement and funding process looks like this:
· Merchants send their authorized transactions in a batch to their payment processor.
· The payment processor hands over the details to the card associations who then hand out the debits to the issuing bank.
· The issuing bank debits the account of the cardholder
· The issuing bank transfers the funds to the merchant bank.
· The merchant bank credits the merchant’s account
So now, you know a little more about what happens behind a card processing system.
