What is involved in Credit Card Processing?
Thousands of credit cards are processed across the world on a daily basis. The function of a credit card processor is to facilitate the processing and movement of funds between the issuing bank and the acquiring bank. The important players, thus, in a credit card processing include the cardholder, the cardholder bank (issuing bank), the card associations, the merchant, and the merchant bank (acquiring bank).
A cardholder is a person who has a credit card from a bank that issues such cards, and then uses this card to pay for goods and services. The merchant is the provider of the goods and services. 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 acquiring bank provides software and equipment to the seller that permit credit card enabled sales. The two phrases, cardholder bank and issuing bank, are often used to mean the same. The cardholder bank furnishes the customers with credit cards. The cardholder banks have special agreements with card associations. Card association act as intermediaries between the issuing banks and the acquiring banks. The role of the card associations to see to the correct transfer of funds between the merchant and cardholder banks.
The authorization of the transaction marks the first stage of credit card processing. When making the purchase, the cardholder hands the card to the merchant who has the means to seek authorization from the acquirer bank. In the authorization process, the merchant receives a code of authorization from the acquirer bank which is an indication that there is sufficient credit available for the transaction. 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 payment is then remitted from the cardholder bank to the merchant bank by the card association. The merchant bank subtracts the interchange charges before accepting the rest of the incoming funds. The issuing bank and the card associations share in the interchange fees as per their agreements.
The last stage is the funding phase. The merchant bank then deducts the discount charges before submitting the rest of the funds 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. After all the above-highlighted processes are completed, the entire procedure of credit card processing is finally brought to a close.
Source: http://tomaltman.com/best-ways-generate-constant-sales-business/