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What Happens When You Swipe a Credit Card?

In order to accept credit cards, business owners must have established merchant accounts. Such accounts are obtained via a credit card company, bank or other payment processor. If the focus is on the swipe of a credit card, the reference would be retail merchant accounts for brick-and-mortar outlets rather than mail or online businesses.

Credit card processing involves four primary stages. Each of those stages involves secondary steps that combine to complete the operation. Together, all the steps of credit card processing embrace a dedicated group of participants. Additionally, as in all technological wonders, a relative vocabulary comes with the process, free of charge.

Authorization: Step One

When the merchant swipes the cardholder’s card through the reader terminal, the merchant is submitting a request to an acquirer, the bank that makes payments on the cardholder’s behalf. For authorization of the transaction, the acquirer forwards the request to the issuer, the corporation that holds the cardholder’s account information. The issuer either approves or denies the request via code returned to the acquirer and the business is concluded, as far as the customer is concerned. Provided the issuer verified sufficient funds in the customer’s account, off the customer skips with new goodies. However, the process hasn’t ended for the retailer.

Batching: Step Two

It wouldn’t behoove a busy merchant to engage in credit card processing if it were overly time consuming. If, during every sale, the merchant’s clerk had to complete all steps of the process, impatient shoppers would be stampeding to another store. Happily, that doesn’t happen. After authorization is received, the store’s credit card terminal simply stores, or batches, all of the day’s information; further processing isn’t completed until later in the night.

Clearing: Step Three

The batch is relayed to the acquirer that, in turn, transmits it to the card network — think, Visa, MasterCard — during the clearing process. From there the receipts’ data is sent to the appropriate issuer, such as Chase or American Express. At that point, the issuer subtracts its interchange fees, which get shared with the card network, and routes the purchase amounts back to the acquirer.

Funding: Step Four

In this last step, the acquirer subtracts its cut of the transaction for covering the costs of credit card processing, dubbed the discount fee. Finally, the acquirer pays the remainder to the merchant and the cardholder is billed.


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