To a customer buying an item from you with a credit or debit card, paying is a fairly simply idea. The customer swipes, and the transaction is complete. For a business accepting that credit or debit card, though, the process is not quite that easy. It’s not as if the card is swiped and the money lands in your business’ bank account. Instead, it’s a pretty complex process.
The key to understanding how credit card processing works behind the scenes is understanding exactly who is involved. First, you have the cardholder. Then there’s the merchant (that’s you). Beyond that, you have the acquiring bank, which is the bank responsible for getting the payment authorization request from the merchant and sending them to the acquiring bank or processor. That bank/processor (sometimes called a merchant services account provider) is the company you contract with to accept credit cards. It sends those details from the swipe to the credit card network, then back to the acquiring bank. The credit card network is the card company itself (like Visa, MasterCard, and others). The issuing bank is the organization that gave the card to the consumer. Some good examples of this are Capital One or Bank of America.
Now that you know who is involved, it may be a little easier to understand what happens when a customer swipes a card or enters that card information. The first step is the actual authorization. Here, a customer swipes his/her card at a terminal or enters it into a website. The card’s details – which typically include the card number, expiration date, billing address, CVV, and payment amount – are sent to the acquiring bank. The acquiring bank sends the details to the credit card network. The card network sends it on to the issuing bank asking for authorization. At that point, the issuing bank works to authenticate the transaction. It ensures the credit card number is valid and that the customer has the funds available to make the purchase. The purchase is then approved (or declined), and it’s sent back through those same channels – to the credit card network, then the acquiring bank, then the merchant itself.
When a purchase is declined, it can happen for a number of reasons, and the merchant doesn’t always understand why. It’s possible the credit card number was entered wrong. The expiration date could also have been entered wrong. The customer could have insufficient funds in his or her account. It’s also possible that the customer made too many purchases at once, and the issuing bank was concerned about fraud. Finally, technical issues within networks do happen, so that could also be behind a rejected charge. In the event your customer’s charge is rejected, you may have some technical support within your merchant services account to rely on to help your customer understand why it happened.
If a payment is authorized, the issuing bank places a hold on the funds in the cardholder’s account. At the end of the day, the merchant’s software pushes the approved authorizations in one big batch to the acquiring bank. That bank then sends it on to the credit card network. The card network sends the information to the issuing bank, and they then send the funds back to the network. Before that happens, though, they deduct an interchange fee that is then shared with the credit card network. The card network pays the acquiring bank, and that bank credits your merchant account for the final total (minus fees from the acquiring bank). Those fees can vary widely depending on the type of purchase and the players involved.
The result? The customer pays his or her bill with the merchant, and the merchant (eventually) gets paid. The good news, though, is most of this happens within just a few seconds. Maybe the slowest part is waiting for the funds to arrive in your business’ bank account, but that can vary depending on the merchant account provider with whom you work.
Processing credit cards is an absolute must for businesses today, but it’s not quite like accepting cash. Understanding how it works can give you an advantage as you try to find the right merchant services account company. For information on Y2Payments Merchant Accounts, give us a call today at 888-693-1850.