Credit Card Processing: The working mechanism behind the whole process

Detailed knowledge of the inner workings of the bank card system is not mandatory, but it can’t hurt to know. Understanding how things actually work is a good approach, as there are sometimes fees at one point or another. The main components of the whole process include:

1. Key player

2. Credit Card Authorization

3. Credit Card Clearing and Settlement

Credit card processing services are so fast and timely that transaction details are transferred from the terminal to a processor in a matter of seconds. Later, this information is relayed to the issuing bank via the card network. Once this all happens, the returner sends an authorization back to the processor over the network.

Throughout the system, obtaining authorization for a transaction remains the first step. Before the transactions are deposited into the company’s bank account, it is necessary for the authorizations to be settled. Settlement and authorization are the two main processes of the transaction. If this fails in whole or in part, this will lead to non-deposited sales or increased costs.

The key players

Key players involved in authorization and settlement include:

1. Customer

2. Service Provider

3. Acquiring bank

4. Issuing Bank

5. Card associations (Visa and MasterCard)

Let’s discuss each player individually.

1. Cardholder: This term refers to the person who receives a credit or debit card from an issuing bank. The card is then presented to merchants as payment for the services or products.

2. Service Provider: Service Provider is the company that sells services or products. It can also be said that it is a business that accepts credit and debit cards.

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3. Service provider bank: Often referred to as the acquiring bank. This is because it creates and manages accounts and allows businesses to accept credit and debit cards. In addition, these banks provide merchants with software and tools for accepting promotional materials, cards and other important elements needed for card acceptance.

4. Issuing Bank: An issuing bank provides customers with credit cards. It is important to know that this bank is a member of the card associations. These banks pay the banks for their cardholders’ sales or purchases. Repayment to the issuing bank in accordance with the norms of the card agreement is the responsibility of the cardholder.

5. Card Associations: Since MasterCard and Visa are not banks, they serve as the custodian and clearing house for their card brand. Additionally, they oversee the community of ISOs, MSPs, and financial institutions working together to support credit card processing and electronic payments.

This was about the important parameters of credit card processing. To maintain transparency in the credit card processing mechanism, it is very helpful to keep these important points in mind.