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credit card processing

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CREDIT CARD TRANSACTION STEPS AND PARTIES INVOLVED

All credit card transactions typically involve a handful of steps for completion of service. This article discusses the same.

Authorization: The credit card holder makes purchases and swipes the card for making the payment. The merchant submits the transaction to the acquirer (acquiring bank) and the acquirer, in turn, verifies the credit card number of the holder and the transaction type. This amount is reserved by the issuer through the acquirer in favor of the merchant. Authorization process generates an approval code which the merchant keeps secured as official record of the transaction.

Batching: Batching refers to storing of the entire day’s transactions together or in ‘batches’ before they are sent to the acquirer.  These ‘batches’ are scheduled for submission typically once at the end of business day. Authorization of those transactions which do not become part of the batch stays valid only for a period of time. This time period is determined by the issuer. After the expiry of this time period the amount is returned to the credit card from where it was debited.  Transactions that are submitted in the batch without prior authorizations can be those transactions that fall under the merchant's floor limit. Or alternatively, these are the ones where the authorization was unsuccessful but the merchant is still attempting to override the transaction through.

Clearing and Settlement: the clearing and settlement process begins with the merchant requesting to the acquirer for final transfer of transaction ‘batch’. This request is channeled through the credit card association which leads to the transfer of money from the customer’s account to the merchant’s account. The transaction charges are essentially levied to the account of the issuer.

Funding: After the money reaches the acquirer, the amount is transferred from the acquirer account to the merchant’s account. The merchant receives the amount from the acquirer after deduction of the transaction fee, popularly known as ‘discount rate’. This is the fees that the merchant pays to the acquirer for processing the transaction.

Charge backs: In case of a dispute arising out of a transaction, chargeback comes into play. A chargeback is an event in which a purchase payment in a merchant account is held back due to a dispute relating to the transaction. Charge backs are mainly initiated by the cardholder. The issuer, in the event of a chargeback, returns the transaction to the acquirer for resolving the dispute. The acquirer, in turn, sends the chargeback to the merchant. The merchant then has the freedom of either accepting the chargeback or advocate it.

Parties involved: For these transactions to take place, a number of parties are involved in the process which may be either directly involved or can act as facilitator. These are card holder, card issuing agency, the merchant, the acquiring bank, an association of card issuing banks an at time independent sales organization such as resellers to the merchant etc. Besides these, the transaction network, that is, the system that implements the electronic transactions is also involved. This network might be operated by a separate single company or a single company operating different networks can also be the case.

Always prefer renowned company like Power Pay Services in the field of online transaction and credit card processing.

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Power Online Solutions, LLC 2005
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