Are you having trouble figuring out how the charges on your credit card bills add up? Here is a simple run down of the important steps involved in the processing of your credit card which will also be useful in understanding how the system works and therefore, what kind of charges are likely to be levied on you.
The major players involved in credit card processing are the card holder, the merchant or the business, the acquiring bank which is the merchant’s bank, the issuing bank which is the card holder’s bank and the Credit Card association such as Visa or American Express or Mastercard.
In the very first step, you submit your credit card to the merchant or seller to be swiped. At the Point of Sale, the merchant swipes the card using the equipment and software that is given to him by his merchant bank. With the digitization of all key accounts related information and also advances in technology, it takes mere seconds for the vendor’s system to transmit the card number and other relevant information to a processor which passes on the processing request to the credit card issuing bank. If the issuing bank approves the transaction, it immediately sends back an authorization via the card network, which in turn, lands at the merchant’s terminal. Once the transaction is authorized, your interaction with the merchant finishes.
However, there is a back end process that is now activated. The next phase, post authorization is the settlement, when your account with the issuing bank is debited, and the merchant’s account with the acquiring bank is credited. The issuing bank and the acquiring bank are both members of Credit Card Associations that are not banks but which act as custodians and clearing houses for the respective banks. In the settlement phase, the issuing bank pays the acquiring bank the money spent on purchases made. After this, it is the liability of the cardholder to repay the issuing bank the amount specified inclusive of processing fees as indicated in the agreement entered into between the card holder and the issuing bank.