A Brief Explanation of Credit Card Processing
My boyfriend and I went out to dinner last Saturday night, and enjoyed an amazing meal. I truly recommend The Maritana Grille in St. Pete Beach, FL.
When it was time to pay the bill, my boyfriend pulled out his trusty debit card. The waiter saw the card and brought an old-school manual imprinter over to our table. He apologized, and explained that their terminal was down. We “chuckled” along with him, mostly at the sight of such an old piece of equipment.
It’s pretty cool to think about how much the technology behind credit card processing has advanced. As consumers, we rarely (if ever) stop to think about what happens behind the scenes of a purchase. Many technical steps occur in the few seconds between handing a merchant your credit card and walking away with your purchase.
Here is a (simple) breakdown of the process. (If you need help with vocabulary, see the glossary below):
1. You walk up to the checkout counter with the items you’d like to purchase.
2. Either you or the checkout employee swipes your credit/debit card, or enters the numbers manually.
3. An “Authorization Request” is generated.
4. The Processor links up with the Visa/MasterCard network in order to transmit the Authorization Request to your bank.
5. Your bank verifies that your card is valid, and that you have the funds to complete the transaction.
6. A “hold” for that amount is placed against your account.
7. Once the approval is received a “Deposit Transaction” is transmitted which finalizes the transaction.
8. You walk away with your purchased items.
9. The Net Settlement Amount is deposited to the Merchant’s account, usually by the end of the same business day.
Remember… all of the above happens in a matter of seconds. My boyfriend’s account was debited yesterday (Thursday), for the meal we’d eaten 5 days earlier (Saturday). With technology, we’ve gone from 5 days to 5 seconds. Crazy!
(Glossary from Yahoo.com)
– Payment Processor: Responsible for contacting issuing banks or credit card associations on behalf of the merchant account provider to request authorization and settlement of credit card transactions.
– Authorization Request: A message sent through FDMS to an issuing bank or credit card association to verify the cardholder has sufficient funds available for the transaction. If the transaction is approved, then a response is sent back to Yahoo! from the issuing bank or credit card association through FDMS.
– Issuing Bank: Any Visa/MasterCard member bank, which issues cards to cardholders. The issuing bank collects funds for purchases from the cardholder.
– Deposit: The amount credited to a merchant’s bank account from the settled transactions in a batch, minus any fees.
– Settlement: A process in which a transaction is processed between a merchant account provider and the issuing bank or credit card association of the buyer. In the case of a sale, funds are transferred from the issuing bank/card association to the merchant’s account. Merchants can review the details of each settlement by reviewing batches.