A Simple Plan: Merchants

Understanding more about Credit Card Processing

In everyday business transactions of the world, numerous credit cards are processed. The credit card processor is basically a third party that sees to the necessities of the processing procedure for the credit card transactions that takes place between the merchants, the providers of the merchant account, and the credit card issuers. The key players in any credit card transaction are the cardholder, the merchant, the merchant bank (acquiring bank), the cardholder bank (issuing bank) and the card associations.

The cardholder is the buyer who uses the credit card that has been issued to them by their respective banks for various purchases. The merchant is the provider of the goods and services. This merchant is able to accept payment in the form of credit card payments. The acquiring bank is the bank of the merchant that offers services for credit card payment. This acquiring bank furnishes the merchants with the software and equipment which enable them to accept card payment. The two phrases, cardholder bank and issuing bank, are often used to mean the same. Its role is to provide customer with the credit cards. The issuing bank is a member of the transacting card association. The link between the merchant bank and the cardholder bank is the card association. These card associations work to ensure that funds are moved between these banks in a safe and timely fashion.

Before the trade can be sanctioned by the merchant; the credit card has to be authorized first. The merchant receives the credit card from the buyer (cardholder) and then uses the provided software and equipment to obtain a green light 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. If a lot of sales were authorized, the merchant sends this list to the acquirer bank in a batch to receive the payment.

The batch is sent to the cardholder bank through the card network in the clearing stage in the payment request. The funds are then transferred to the merchant bank by the card association. The acquiring bank collects the interchange fee from the transaction and then transfers the rest of the funds. According to their terms of trade, the interchange fee is divided between the card associations and the merchant bank.

The funding stage marks the last process of card processing. The acquirer bank then subtracts the appropriate discount fees and then pays the remaining sum to the merchant. The sum sent to the merchant at the end of the credit card processing is hence the result of the subtraction of the interchange and discount charges. After all the above-highlighted processes are completed, the entire procedure of credit card processing is finally brought to a close.

Source: http://www.dreambigrewards.com/working-freelance-what-you-need-to-know/