A business that accepts credit cards is called "Merchant". For a Merchant to be able to accept credit cards, it should open a "Merchant Account" with a "Merchant Bank or Sponsoring Bank or Acquiring Bank".
This is the bank that receives the "Net Settlement Amount" from the Issuing Bank after the transaction is processed. The Net Settlement Amount is the amount of the actual sale minus transaction fees called the "Discount Rate." There are times when the merchant has to pay "Pass-through Fees" because the transaction doesn't meet some requirement.
The Steps In Credit Card Processing
A transaction would start when the magnetic stripe at the credit card's back passes through the credit card terminal, or if the credit card account number is entered into the system. This enters the transaction information into the Processor's network.
An "Authorization Request" is generated.
The Processor would link with the Visa/MasterCard network to transmit the Authorization Request to the Issuing Bank's computer network.
The Issuing Bank verifies that a valid credit card number has been received and that the Cardholder has enough money available ("Open to Buy") to fund the transaction.
There would be a "hold" on the Cardholder's Open to Buy, reducing the amount of his Open to Buy for future transactions.
Once the approval is received a "Deposit Transaction" is transmitted which finalizes the transaction. The merchant can now release the purchases.
Usually, the Net Settlement Amount will be deposited into the Merchant's account by the end of the same business day.
Glitches In The Processing
There are times when the process hits errors, so humans would have to get involved. Although it is 100% computerized, the Visa/MasterCard network is programmed with many "triggers" that will route the transaction to a human being for closer scrutiny when one of those triggers are pulled.
The most common triggers are.
Spending patterns that are unlike the Cardholder's usual purchases. Buying of products or services that are considered to be "high fraud". Purchases abroad. There are some Card Issuers who require their Cardholders to tell them if they will travel abroad.
What's really amazing is not that the entire processing cycle is flawlessly repeated millions of times per hour, but that it all happens in just seconds!
This is the bank that receives the "Net Settlement Amount" from the Issuing Bank after the transaction is processed. The Net Settlement Amount is the amount of the actual sale minus transaction fees called the "Discount Rate." There are times when the merchant has to pay "Pass-through Fees" because the transaction doesn't meet some requirement.
The Steps In Credit Card Processing
A transaction would start when the magnetic stripe at the credit card's back passes through the credit card terminal, or if the credit card account number is entered into the system. This enters the transaction information into the Processor's network.
An "Authorization Request" is generated.
The Processor would link with the Visa/MasterCard network to transmit the Authorization Request to the Issuing Bank's computer network.
The Issuing Bank verifies that a valid credit card number has been received and that the Cardholder has enough money available ("Open to Buy") to fund the transaction.
There would be a "hold" on the Cardholder's Open to Buy, reducing the amount of his Open to Buy for future transactions.
Once the approval is received a "Deposit Transaction" is transmitted which finalizes the transaction. The merchant can now release the purchases.
Usually, the Net Settlement Amount will be deposited into the Merchant's account by the end of the same business day.
Glitches In The Processing
There are times when the process hits errors, so humans would have to get involved. Although it is 100% computerized, the Visa/MasterCard network is programmed with many "triggers" that will route the transaction to a human being for closer scrutiny when one of those triggers are pulled.
The most common triggers are.
Spending patterns that are unlike the Cardholder's usual purchases. Buying of products or services that are considered to be "high fraud". Purchases abroad. There are some Card Issuers who require their Cardholders to tell them if they will travel abroad.
What's really amazing is not that the entire processing cycle is flawlessly repeated millions of times per hour, but that it all happens in just seconds!
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