How does debit and credit card processing work?

Looking for a faster, easier way to authorize and manage debit and credit card processing? CardService International can be the right solution!

Below you can read an important article on how transaction processing works.

Five parties participate in every internet purchase

The Issuing Bank extends a credit card and an account to a customer after verifying the applicant's creditworthiness. The merchant's payment will eventually come from this bank.

The Consumer uses a Web browser such as Netscape Navigator¨ or Internet Explorer¨ to interact with the merchant's Web site. When this consumer makes a purchase, they must use a bankcard from an issuing bank and provide this information to the merchant's commerce-enabled Web site.

The Merchant offers goods or services for sale via an e-commerce enabled Web site. To accept credit card payments over the Internet, a merchant needs an online merchant account with a merchant bank (see below) that offers Internet credit card processing.

The Merchant Bank provides merchants with an online merchant account (to accept "card not present" transactions). This bank may contract with an acquiring processor to move the credit card transaction through the payment process, or it may function in this capacity itself.

The Acquiring Processor routes the transaction through the electronic financial networks for processing and settlement, delivering the payment to the merchant's online account once it has been obtained from the credit-card holder's account with the issuing bank.

Credit Card Processing Transactions
Step By Step

You may be surprised at the number of steps involved - and at the critical role played by an electronic payment transaction processor such as First Data.

Step1: A consumer decides to buy something. The merchant's commerce-enabled Web site prompts the customer for credit card information as well as "bill-to" and "shipping" addresses.

Step 2: The customer enters the information into a form secured by the SSL (Secure Sockets Layer) protocol. SSL encrypts the transaction data and sends the secured form over the Internet to the merchant.

Step 3: Using the payment software incorporated into the merchant's Web server, the encrypted transaction data is now sent to the acquiring processor, (i.e. First Data Merchant Services), for authorization. The merchant can send the data via an Internet gateway service, which will reformat the information so that it is compatible with the acquiring processor's systems. Alternatively, in cases where the merchant has installed software on its Web server, which is compatible with and approved by the acquiring processor, the transaction data can be sent directly to the processor via a private dial or leased line.

Step 4: The acquiring processor then communicates the transaction data to the consumer's (issuing) bank. The issuing bank now authorizes a certain amount of money and issues an authorization code, or declines the transaction. The authorization decreases the customer's available credit, but does not yet put a charge on his bill or move the money to the merchant. At this point, the acquiring processor will communicate with the merchant's Web site, which will notify the consumer that the purchase has been approved.

Step 5: Once the transaction has been authorized, the next step is a capture. The capture uses the information from the successful authorization to charge the authorized amount of money to the consumer's credit card. In line with bank card (VISA/MasterCard¨) association rules, a merchant may not capture a transaction until the goods have been shipped. So there may be a lag time between authorization and capture.

Step 6: The last step in the process is to settle the transaction between the merchant and the acquiring processor. As captures and credits come in, the merchant accumulates them into a batch, which will then be settled as a group. When submitting a batch, the merchant's payment-enabled Web server connects with the acquiring processor (i.e., First Data) to finalize the transactions. (Again, if the merchant is using an Internet gateway service, such as First Data's SurePay Payment Gateway, it will decrypt the transaction and reformat it for the acquiring processor.) When the acquiring processor receives the information and settles the batch, it sends payment instructions to the issuing and merchant banks, which will result in monies being transferred to the merchant's online bank account. (If the consumer should return the goods after the transaction has been captured, a credit is generated.)

Learn more about secure credit card processing