how does online credit card processing work

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Online Credit Card Processing

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In this Presentation lets take a detailed view on all the aspects related to online credit card processing, Some of the Payment gateway providers who have made the process extremely simple and some interesting facts related to it.

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What happens when you swipe your Credit card ? Though things seem to happen in a few seconds – and you sign the receipt, there is a series of activities happening lightening fast behind the scenes. Be it Online or over a swipe machine, any credit card processing is started by the Credit card payment processor reading the credit card information from the magnetic tape ( or via. the credit card number entered online ) and passing it on to the Issuing bank ( or the Credit card association ) for a series of verification’s like the Name, Credit limit, checking anti fraud measures etc. Once all the checks return positive, the Payment processor gives a GO to the merchant to initiate and complete the transaction. In the cycle of Credit Card processing, this initial stage is very critical and this is what decides to proceed with the transaction or decline it there itself.









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Once the Payment processor finishes off with the verification the Credit card processing enters the second phase and the information is passed on to the acquiring bank ( An acquiring bank is a financial institution that takes care of getting the money for the product purchased from the merchant by the buyer ). The acquiring bank takes the credit card processing authorization to the next stage and gets yet another confirmation from the Credit card issuing bank. Once that results return positive, the acquiring bank tells the Card issuing bank to reserve the proposed amount of credit from the buyer for the merchant.







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History : The first form of modern day credit card was started by Diners club . In 1950, Ralph Schneider and Frank McNamara ( the founders of Diners Club ) issued a common card for people to pay their restaurant bills across any outlet effortlessly by recording their Diners club card number. Post which Diners club would pay back the restaurant owners the money.

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Once the Card issuing bank gets the request from the acquiring bank, it checks for the credit limit for the submitted card and authorizes the reserve to be sent to the acquiring bank( for the merchant ). This phase of the credit card processing cycle is commonly called as batching. Credit-card issuing banks receive many such requests everyday ( many-times even in millions ), and to make the process smooth, the CC issuing banks keeps all these requests in batches and sends the batches to the respective acquiring banks at the end of the day. These batches are just packets of information about the credit owed by the issuing bank to the acquiring bank – and they are not money yet.







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Once the acquiring bank receives the batches,

it sends the batch information to the Credit card

association for clearance. The Credit card association

verifies the details from its end and debits the Card issuing

bank and credits the acquiring bank for the bathes

supplied. This is the phase of credit card processing in

which the acquiring bank gives the merchant his money. In

this process the acquiring bank deducts the fees from the

money given ( which is agreed upon mutually by the

merchant and the acquiring bank prior to their business

relationship ).







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The money debited from the

credit card issuing bank is put as a loan upon the

credit card holder. The money is collected with

interest from the credit card holder in bulk or in

installments based on the plan the customer has

signed up with the issuing bank. With this phase

the online credit card processing cycle comes to

an end – unless there is a charge back initiated by

the card holder.facebook.com/gentleninja.org






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What is a Charge back ? In cases when the Credit – Card holder is not satisfied with the money he has paid for a particular transaction, he asks his issuing bank to cancel the loan put on him for the transaction. In this case the online credit card processing cycle enters a new phase called the Charge Back. When a credit card holder asks the issuing bank for a charge back, the issuing bank sends a special note to the acquiring bank to return the money debited from its end ( along with the reason submitted by the card holder ). The acquiring bank in turn forwards that particular transaction details to the merchant who is entitled to fight back if he feels the charge back is un-fair or he can accept the charge back and his acquiring bank will pay back the money to the issuing bank.







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Top 3 Online credit card processing bodies that can make your life easy :

PayPal :

PayPal is not only an online credit card

processing body but also an e-Wallet by itself ( you

can store the money received in your PayPal

account ). PayPal has a good reach in most of the

countries in the world and you can receive Credit

Card payments from anyone in any country. Paypal

has made online credit card processing very smooth

and easy.







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Stripe : One of the most recent trending online credit card processing bodies is Stripe. Stripe is widely used and known for its flexibility and the user friendly developer API they have which makes integrating the service in any website a breeze.Authorize.net : Authorize.net is another online credit card processing body that is exclusive for the internet. They provide a suit of services for merchants to effortlessly process credit card payments online in a very secure manner. Apart from the above list of online credit card processing bodies each bank also provides Payment Gateways to be used directly by merchants. By going directly with the bank to build your payment gateway, you can save a lot on transaction fees that needs to be given to the 3rd party online credit card processing bodies like PayPal, Sage Pay, Stripe, WorldPay, Authorize,.net etc.





how does online credit card processing work

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