Credit card payment processing is a multi-step process required to make a monetary transaction using a credit card. The financial transaction can be done at a store in person, via mobile phone, online, or by mail.
When a customer uses the best credit card in India, swiping the card at a point of sale or entering the details of the online credit card is only the first step in the credit card payment process. Multiple operations take place in the background which ensures the payment transaction gets completed quickly and securely.
Credit Card Processing
Credit card processing begins with a purchase made physically or online using a credit card and is completed when the transaction is approved. The process consists of multiple steps and involves several parties.
The business owner should have a merchant account at the acquiring bank to be eligible for accepting credit card payments. In addition, business owners require a payment processor in order to process card payments through a merchant account to their bank accounts.
Entities Involved in Credit Card Processing
As stated above, there are multiple entities that result in successful credit card processing. These parties are:
- Business owner: The business owner is the merchant that accepts a credit card payment from the customer.
- Cardholder: The cardholder is the customer who uses the credit card to shop for products and services from the merchant.
- Issuing bank: It is the financial institution that has provided the customer’s credit card. The customer’s account with the issuing bank is debited for every transaction he makes.
- Acquiring bank: It is the business owner’s acquirer and manages their bank account. The acquiring bank accepts and approves the customer’s payment data and passes on the information to the issuing banking entity. The acquiring bank is responsible for the business owner’s payments and ensures the efficiency of the payment processor.
- Bank card associations: Bank associations are bodies that facilitate transactions between the issuing bank and the merchant acquirer. The bank card associations give a virtual payment framework using which payments can be made possible.
- Payment processor: It is the connector between the financial entities and the merchant involved in the payment processing. The payment processor is responsible for the technological interface that handles the credit card payment data and sends it to the entities involved in the payment process.
- Payment gateway: It is the software that receives the payment card’s data and forwards it to the payment processor.
Steps Involved in Credit Card Payment Processing
Step 1: Authorisation: It is a process through which the amount to be paid on a payment method is verified. The stages involved in the authorisation process are:
- The credit card holder enters his credit card number to make a purchase. A payment gateway is used to make an online payment while a point-of-sale system is used to make an in-store payment.
- The payment processor gets the authorisation request from the business owner.
- The payment processor sends the authorisation request to the issuing bank via a bank card association.
- The authorisation request that the bank receives contains crucial information like the card expiry date and the credit card CVV.
- The bank approves the transaction if the transaction is authorised, there are sufficient funds in the customer’s account, and there is a sufficient credit limit on the credit card. If these criteria are not met, the bank rejects the transaction.
- After the bank approves the transaction, the money gets transferred to the merchant’s account. The card association, the acquiring bank, and the business owner receive information regarding the approval or rejection of a transaction.
Step 2: Settlement and funding: The last stage of credit card processing is the settlement stage where the business owner receives the money that the customer has paid for the goods or services purchased.
The business owner sends batches of payments to the payment processor and it is forwarded to the card association. The card association notifies the issuing bank and it debits the money from the customer’s account. The funds sent by the bank get credited to the merchant’s acquirer account at the acquiring bank and the interchange fees are cut at this point.
Credit Card Payment Processing Time
Credit card payments typically take 24-72 hours to get processed. Credit card payments are received and processed in batches by the payment processor and other parties involved, which affects the processing time. Generally, credit card payments done online or over the phone are processed sooner than credit card payments done over the mail. You can apply for the best credit card in India when looking for a smooth credit card payment process.