Credit Card Processing: Involves Many Players in a Complex System

The credit card processing system is a complex process, that involves several players, but is one which consumers rarely understand. The system may be less destructive if more understood how the processing system actually worked and how payments are processed.This knowledge may allow consumer to use it to their advantage. Knowledge of the process can also be advantageous to business owners and especially to eCommerce operators.

The players involved in a credit payment transaction typically include

The customerThe businessthe card issuer: normally Visa, Mastercard, Discover..the payment gatewaythe card interchangethe acquiring bank's processor: This is normally the bank or institution that will accept payments on behalf of the business.Where the merchant account is maintainedthe merchant's acquiring bank

A credit card processing payment is a complex process, however with the speed of electronic data transfer, the process takes only seconds.

The customer pays for the purchase and the merchant submits the transaction to the acquirer (acquiring bank). The acquiring processor verifies the number, the transaction type and the amount with the issuer (Card-issuing bank) and reserves the transaction amount from the cardholder's credit limit for the merchant.

The processor instantly submits the transaction to the interchange. The interchange clears the transaction and it is forwarded to the issuing bank where the funds available in the customer's account are verified.

When the payment has been authorized, an approval code, will also be generated,which the merchant stores with the transaction. The approval is sent to the merchant account at the acquiring bank. From there, the payment is then deposited in the bank account of the business. Along the way there are associated fees that are deducted at every step in the process. After a purchase of perhaps $100 by the customer, the business may end up with $97.0 after all the fees have been deducted.

Credit card processing fees can hurt small business owners.

Businesses that accept credit cards must pay the interchange fees and discount on all credit-card transactions. In 2008, U.S card companies collected a total of $48 billion in interchange fees, with an average of $427 per family, or fee rate of about 2% per transaction. The merchants are not normally allowed to pass the fee on to customers, however product pricing can be adjusted to cover the fees on transactions. In some instances of very low-value transactions, the use of credit cards will significantly reduce profit or may even cause the merchant to lose money.

In order to recoup fees lost from interchange payments, many financial institutions may appear to make significant changes in other areas of the banking process, as many small business owners and retailers contend that interchange fees appear to be hurting profitability.

Merchants or business owners appreciate the use of credit cards as opposed to cheques or cash transactions, because it may mean the the credit risk of the customer has already been verified and because the issuing bank commits to pay the merchant when the transaction is authorized, regardless of whether the consumer defaults on the card payment. Credit card processing can facilitate retail transactions which can help an economy, but there may be disadvantages in low-volume transactions.

The credit card processing system is confusing and complex, but can be still to the advantage of users.
To better understand how to use credit cards to your advantage visit http://eConsumersearch.com/blog/credit-card-wisdom

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