How a creditcardisprocessed
- 1. How a credit card is processed Step 1, Authorization $ Cardholder 1. The cardholder requests a 6. The cardholder receives the purchase from the merchant. product. ? Merchant 2. The merchant submits the 5. The acquirer authorizes the request to the acquirer. transaction. ? Acquirer 3. The acquirer sends a request MasterCard VISA 4. An authorization code is sent to the issuer to authorize the to the acquirer if there is transaction. Card network valid credit available. CapitalOne 123 Issuer © Copyright 2009 CreditCards.com
- 2. How a credit card is processed Step 2, Batching Cardholder 1. The merchant stores all the day’s authorized sales in a batch. $$$ $$$ Merchant 2. The merchant sends the batch to the acquirer at the end of the day to receive payment. Acquirer MasterCard VISA Card network CapitalOne Issuer © Copyright 2009 CreditCards.com
- 3. How a credit card is processed Step 3, Clearing Cardholder Merchant $$$ $98.30 Acquirer The card network routes the 1. The batch is sent through 4. the card network to request amount to the acquirer. payment from the issuer. MasterCard VISA Card network $100 -1.70 $$$ CapitalOne 2. The card network 3. The issuer subtracts its distributes each transaction interchange fees, which are to the appropriate issuer. shared with the card network, and transfers the amount. Issuer © Copyright 2009 CreditCards.com
- 4. How a credit card is processed Step 4, Funding -$100 Cardholder 2. The cardholder is billed. $97.80 Merchant 1. The acquirer subtracts its discount rate and pays the merchant the remainder. $98.30 -0.50 Acquirer MasterCard VISA Card network CapitalOne Issuer © Copyright 2009 CreditCards.com
- 5. How a credit card is processed Glossary Acquirer: A bank that processes and settles Discount fee: A processing fee paid by a merchant's credit card transactions with the merchants to acquirers to cover the cost of help of a card issuer. processing credit cards. Authorization: The first step in processing a Funding: The fourth and final step in credit card. After a merchant swipes the card, processing a credit card. After receiving the data is submitted to merchant’s bank, payment from the issuer, minus called an acquirer, to request authorization interchange fees, the acquirer subtracts its for the sale. The acquirer then routes the discount fee and sends the remainder to request to the card-issuing bank, where it is the merchant. The merchant is now paid for authorized or denied, and the merchant is the transaction, and the cardholder is allowed to process the sale. billed. Batching: The second step in processing a Interchange fee: A charge paid by credit card. At the end of a day, the merchant merchants to a credit card issuer and a reviews all the day’s sales to ensure they card network as a fee for accepting credit were authorized and signed by the cards. They generally range from 1 to 3 cardholder. It then transmits all the sales at percent. once, called a batch, to the acquirer to receive payment. Issuer: An financial institution, bank, credit union or company that issues or helps Cardholder: The owner of a card that is used issue cards to cardholders. to make credit card purchases. Card network: Visa, MasterCard or other networks that act as an intermediary between an acquirer and an issuer to authorize credit card transactions. Clearing: The third step in processing a credit card. After the acquirer receives the batch, it sends it through the card network, where each sale is routed to the appropriate issuing bank. The issuing bank then subtracts its interchange fees, which are shared with the card network, and transfers the remaining amount through the network back to the acquirer. © Copyright 2009 CreditCards.com