For running a business successfully you must understand and evaluate different products and services. One of the common and popular payment modes is credit card payment. For accepting credit card payments you must first select a processing company. There are numerous credit card processor companies in the present scenario. Selecting a credit card processor is very critical and important than the core payment services. For selecting the best processor you must know the background working of credit card payment. Merchant Services Broker Solutions is one of the most popular credit card processors that offer a lot of features and tools for business owners.
In this blog, let us discuss briefly online credit card processors, payment process and the members involved in the process. If you are planning to include credit card payment mode for your business, then this article will be very helpful.
Members involved in the credit card transactions:
- Buyer or customer: Cardholder uses the credit card to pay for the service or goods. They get the card from the bank.
- Merchant: The business owner who accepts credit card payment for the purchased services or goods.
- Merchant’s bank: They establish and maintain the account of the merchant. They allow cash deposits through debit card and credit card payment.
- Payment processor: They process the credit card transaction. They connect card network, merchant’s bank, merchant and others for the successful credit card payment.
- Issuing Bank: The bank or the credit union issues a credit card to the cardholder. It is mainly done through card association.
- Card association: It includes American Express, Discover, MasterCard, and Visa. They perform the vital functions between the acquiring bank and issuing bank.
Credit card payment process:
Online credit card processors follow three important steps. They are authorization, settlement, and funding.
Step 1: Authorization process
After purchasing goods or services in exchange that the cardholder presents their card to the merchant. The origination of the payment request is from point of sale system or a credit card terminal. It can be from an offline store or an online website gateway, or through the app or mobile payment. For authorization, the merchant sends a request to their payment processor. The payment processor sends the request to the card association and also the issuing bank. Details like CVV number, expiry date, and AVS validations are sent to the issuing bank for authorization.
The bank approves the transaction. It can also decline the transaction for various reasons like incorrect information, insufficient funds, expiry of the card, time passed or other factors. Once the issuing bank approves the transaction it will be forwarded to the card association. From card association, it will be sent to the merchant’s bank and finally, it will reach the merchant. The status of the transaction will be sent to the merchant even when the authorization is denied by the issuing bank.
Step 2: Settlement and funding
After completing a set of the payment transaction. The merchant will send the authorized transaction to the payment processor in batches. Next, the payment processor will send the details of the transaction to the corresponding card association. After this step, the card association will communicate the debit details to the issuing bank of the corresponding network.
The issuing bank will debit the payment amount from the cardholder’s or buyer’s account and transfer it to the merchant’s bank. While transferring the amount they will reduce the transaction charges from it. The transaction charges differ based on the bank, card association, and payment processor. Finally the merchant bank credit the transaction amount to the merchant’s account.
The authorization step takes only a few seconds but the settlement and funding process will take minimum one day. For security reasons, all the information will be encrypted. Selecting the right credit card payment processor companies is very important because it impacts the transaction charges and the time taken for settlement and funding.