Having the intimate knowledge concerning the inside-workings of the bankcard system is just not mandatory however then there is not any hurt in knowing it. Understanding how things actually work is an effective approach, as charges are incurred at instances at one or the opposite stage. The primary components in the entire process contain:
1. Key players
2. Credit card authorization
3. Credit card clearing and settlement
Credit card processing companies are so quick and well timed that within few seconds, transaction particulars are transferred from the terminal to a processor. Later, this information is passed by the card network to the issuing bank. As soon as all this happens, the issuing back sends an authorization back to the processor via the network.
In the whole system, obtaining an authorization for a transaction stays the primary step. Earlier than the sales are deposited in the bank account of the business, it is necessary that the authorizations are settled. Settlement and authorization are the two major processes of transaction. If ever this occurs a failure be it full or partial, it leads to sales not deposited or increased costs.
The Key Players
Key players concerned in authorization and settlement embrace:
1. Buyer
2. Service Provider
3. Acquiring Bank
4. Issuing Bank
5. Card Associations (Visa and MasterCard)
Let’s focus on each player one by one.
1. Cardholder: This term refers to the one who gets a credit or debit card from an issuing bank. The card is then offered to the merchants as payment for the companies or products.
2. Service Provider: Service provider is the business that is engaged within the sale of services or products. It can be said that it is a business that enables accepting credit as well debit cards.
3. Bank of the service provider: It is often referred as an acquiring bank. This is because it creates and maintains accounts and enables businesses to simply accept credit and debit cards. Moreover, these banks provide software and tools to just accept promotional materials, cards and other essential parts wanted in card acceptance to the merchants.
4. Issuing Bank: An issuing bank provides credit cards to the customers. It is important to know that this bank is a member of the card associations. These banks pay the banks for the sales or purchases made by their cardholders. Repaying the issuing bank as per the norms of card agreement is the responsibility of the cardholder.
5. Card Associations: As MasterCard and Visa aren’t banks, they serve as a guardian and clearing house for their card brand. In addition, they monitor the community of ISOs, MSPs and monetary institutions that work collectively to assist credit card processing and electronic payments.
This was all concerning the essential parameters of credit card processing. To keep transparency within the credit card processing mechanism, keeping these important factors in mind is quite helpful.
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