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What Is A Credit Card Processor?
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Credit Card processor is a company appointed by Acquirer Bank to process online Credit card transactions. It is meant only for online payments for goods and services. Before we understand more about Credit Card processors, it is pertinent to understand the Key players in the online Credit card payment process.
Online credit card payment processing has two phases:
The Key players in the Credit card payment process are:
1. Card Holder
3. Acquirer Bank(or it’s processing company called Credit Card Processor)
4. Card Network
5. Issuer Bank.(Card holder’s bank)
Steps in Authorization process:
1. In the first step, the card holder offers his Credit card as payment option to the merchant or the business owner who sells his goods or services.
2. The merchant enters the credit card details of the card holder or customer in the credit card processing terminal.
3. The details of credit card are sent to the Credit card Processor or the acquirer Bank (Merchants’ bank). These days, banks have increasing outsourced payment processing to companies that specialize in payment processing. In this case, a Credit Card processing company plays an important role. For example, EBS is a company which processes online payments for various banks in India. You can check out its website for more information.
4. The card network which would mean Visa, MasterCard or American express, would transmit the Card details via their network to the Card Issuing Company. For example, HDFC Bank issues its credit Card and has a MasterCard logo in it. In this case, it would be MasterCard who acts as the intermediary in the payment process.
5. The Card issuer bank, who is obviously the customer’s bank, will receive Card details and transaction amount via card network from the credit card processor or the Acquirer’s bank. The issuer bank processes the transaction order, and checks customer credit limit, account balance, and as to whether the account stands as credit worthy or not. Once an assessment is done, it approves the transaction. This approval is called Authorization.
6. Once the transaction is authorized, the information is relayed by the card network to the merchant at the card processing terminal.
7. As a final step, the merchant at the terminal authorizes the transaction, and the digital record of the authorizations done in a business day are kept stored, in order that they may be settled at the end of a business day.
Now that Authorization process has been completed, the actual settlement process begins.
Steps in Settlement process:
1. The merchant electronically sends his stored digital data called the Authorization batch. Authorization batch is data having information related to approved transactions with the Card holding customers. This task is usually done at the closing of a business day.
2. The Credit card payment processor receives the authorization batch on behalf of the acquirer’s bank. It relays it forward to the Card issuer bank via the Card network (Visa, MasterCard etc.)
3. The Issuer bank credits the acquirer bank with funds that arise from the proceeds of sales. The funds are credited then, to the Merchant after deduction of networking and payment clearance expenses of it, and the Card processor.
4. The Issuer bank is then required to collect payment from the card holder via Credit statements which depend upon the kind of payment options and the agreement between the Card holder and the issuer.
Thus, in this manner the Credit Card Payment process occurs every time a Card is swiped in a Card processing machine.
It is important to note that monthly payments, expenses etc have to be incurred by the Merchant in order to maintain his merchant account with the Credit Card processor, or the bank, along with other expenses like Card network usage etc.
All of these processes are meant to explain and elaborate as to how the process cycle is completed in a matter of seconds to be frank. This is far better than normal bank transactions that take a lot of time to settle.
As a business person, it is also important to understand how such services, such as provision for credit card payment, may incur some expenses for the Merchant. But considering the ease of transactions, and the easy availability of credit, it makes it imperative to consider having a merchant account opened by Card payment processors in order to facilitate quick transactions.
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