Having intimate knowledge about the inner workings of the bank card system is not required, but there is no harm in knowing. Understanding how things actually work is a good approach, as fees are sometimes incurred at one stage or another. The main components of the entire process involve:
1. Key players
2. Credit card authorization
3. Credit card clearing and settlement
Credit card processing services are so fast and timely that within seconds, transaction details are transferred from the terminal to a processor. Subsequently, this information is passed through the card network to the issuing bank. Once all of this happens, the sender sends an authorization to the processor over the network.
Throughout the system, obtaining an authorization for a transaction remains the first step. Before sales are deposited into the company’s bank account, authorizations need to be cleared. Settlement and authorization are the two main transaction processes. If this ever occurs a failure, whether total or partial, leads to non-deposited sales or increased costs.
key players
The main actors involved in authorization and settlement include:
1. Client
2. Service provider
3. Acquiring bank
4. Issuing bank
5. Card associations (Visa and MasterCard)
Let’s talk about each player one by one.
1. Cardholder: This term refers to someone who obtains 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 is dedicated to the sale of services or products. It can also be said that it is a business that allows you to accept both credit and debit cards.
3. Service Provider Bank – Often referred to as the acquiring bank. This is because it creates and maintains accounts and allows businesses to accept credit and debit cards. In addition, these banks provide software and tools to accept promotional materials, cards, and other important items necessary for card acceptance to merchants.
4. Issuing bank: An issuing bank provides credit cards to 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. Reimbursing the issuing bank according to the rules of the card agreement is the responsibility of the cardholder.
5. Card associations: Since MasterCard and Visa are not banks, they serve as gatekeepers and clearinghouses for their card brand. Additionally, they monitor the community of ISOs, MSPs, and financial institutions that work together to support credit card processing and electronic payments.
This was all about the important parameters of credit card processing. In order to maintain transparency in the credit card processing mechanism, it is very helpful to keep these important points in mind.