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Credit Card Processing: The Working Mechanism Behind the Complete Process
Having the intimate knowledge in regards to the inside-workings of the bankcard system shouldn't be necessary but then there is not any harm in knowing it. Understanding how things truly work is a good approach, as fees are incurred at times at one or the opposite stage. The principle elements in the whole process contain:
1. Key players
2. Credit card authorization
3. Credit card clearing and settlement
Credit card processing services are so quick and well timed that within few seconds, transaction details are transferred from the terminal to a processor. Later, this info is passed by way of 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 remains the first step. Before the sales are deposited within the bank account of the business, it is critical that the authorizations are settled. Settlement and authorization are the 2 major processes of transaction. If ever this happens a failure be it full or partial, it leads to sales not deposited or elevated costs.
The Key Players
Key players concerned in authorization and settlement embrace:
2. Service Provider
3. Buying Bank
4. Issuing Bank
5. Card Associations (Visa and MasterCard)
Let's focus on each player one by one.
1. Cardholder: This term refers back 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 services or products.
2. Service Provider: Service provider is the enterprise that's engaged within the sale of services or products. It can be said that it is a enterprise that allows accepting credit as well debit cards.
3. Bank of the service provider: It is typically 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 accept promotional supplies, cards and other necessary components 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 are not banks, they function a guardian and clearing house for his or her card brand. In addition, they monitor the community of ISOs, MSPs and monetary institutions that work jointly to support credit card processing and electronic payments.
This was all about the necessary parameters of credit card processing. To keep transparency in the credit card processing mechanism, keeping these essential factors in mind is quite helpful.
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