It all looks like a simple process when a customer swipes a card and the receiving business gets the funds. However, it is a much more intricate operation from beginning to end. When a customer hands over the credit or debit card, a long list of processing and security checks happens. Learning how financial transactions occur can help you appreciate the high quality of technology that occurs between your bank, your customer’s bank, the payment processing system, and any other financial institutions involved.
How Credit Card Processing Works
Credit card information can be taken through a virtual payment gateway, a mobile terminal device, a merchant system, or through a point of sale system. Credit card payments are designed to happen seamlessly, allowing for speed and efficiency. After the data is entered in, it often follows a common process.
Credit Card Approval
When the customer is ready to make a purchase, they provide their card to the merchant who then scans or inputs credit card information. Once inserted through one of the payment systems, the payment has to be approved. The payment gateway will deliver the card’s data to the payment processor. Funds will not be transacted if the total amount isn’t first confirmed as available. This occurs when the credit card processing system you are working with first checks the banking institution to see if the amount is in their bank. The banking institution will signal to the payment processor that the amount is verified. Once this is validated, then the transaction is approved.
The credit card processing system will double-check that this person is the real card owner and perform a few anti-fraud checks first. For example, if there were no funds available then this would be the first indication of fraud. Other checks include the full name matching up with the credit card number. Some may request the date and CVV code as well. Most transactions may require a chip scan for extra security coverage.
All financial data running through each of these entities is immediately encrypted. That is why no one can tap into or steal data that happens during a credit card transaction. Without the worry of data breaches, some cards allow you to tap them onto the payment terminal device wirelessly, as the security encryption system is highly reliable.
Credit Card Data Processing
According to Interchange Pros, the process of a credit card financial transaction requires several parties. This includes the consumer’s bank, the merchant’s bank, and the payment processor. If banks use additional financial institutions, such as fraud checkers, this would be an additional step within the institution itself. The transaction has to go through all of these parties, which each require a tiny fee or percentage before the entire transaction is complete. When the consumer’s bank ultimately delivers the funds to the payment processor, then the payment was a success. This amount is later transferred over to the merchant’s bank. The merchant will be signaled on the final status of the transaction when the funds finally reach their account.
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