Credit Card Processing

We all love Credit Cards - spend today, pay later - makes life a lot more convenient. Some of us make payments on time, while some of us are happy with paying the interest on the credit card arrears (spending) and make the payment in installments over a long duration of time. The concept is to live today and live life to the fullest. Apart from making the payments of credit card, However, one should be careful about the credit card processing. It is an important concept and requires thorough understanding keeping in mind the security of your credit card transactions. I've listed some Credit Card Safety Tips, but along with that, one should also be aware of the Credit Card Processing, so that we do not end up accidently allowing fraudsters to misuse our credit card, and then sit with the liability of payments to be made by us.

In this article, we’ll take you through the complete process of Credit Card Processing and how it happens step-by-step. This will help you understand the details of credit card transaction processing and will ensure that you are aware where all the security breaches that can occur while you use your credit card for making a payment.

Introduction to the Credit Card Processing is dispalyed in the figue below:



Though most of us agree that plastic cards have revolutionised our spending method and transformed the way we manage our money, have you ever wondered what happens behind the scenes when you hand your card over to pay?

Above is the flow chart (borrowed from APACS website) that details the complete payment process from the moment you hand over your card in a shop, restaurant or hotel to the moment when the money comes out of your account.

The process begins
Every credit card processing transaction follow a basic process that begins with the cardholder, and involves four primary points of contact. Let us assume an example of a hypothetical credit card user called Anna.

How Credit Card Processing works?
Anna is at her favourite dress shop to purchase some new clothes. After finding the clothes she wants, Anna decides that she is going to use her credit card to pay for the cost of her purchase. So, what happens next?

Credit Card Processing Step 1:
Anna (the cardholder) hands her card to the shop assistant (the retailer) to pay for the clothes. The payment process begins when the shop assistant inserts her card into the electronic processing machine, also known as a point-ofsale (POS) terminal. Once the card has been inserted, Anna will be asked to enter her personal identification number (PIN). Entering her PIN verifies that she is the genuine cardholder and confirms the purchase amount.

Credit Card Processing Step 2:
Once Anna’s PIN is accepted by the shoe store’s POS terminal, her card details and the purchase amount will be passed through to the store’s bank. The store’s bank, also known as the acquirer bank, will then deal with Anna’s card transaction and forward it to Anna’s bank (known as the credit card issuer) via the card scheme (i.e. Visa or MasterCard) that Anna’s card is linked with.

Credit Card Processing Step 3:
When Anna’s bank receives the details of Anna’s purchase from the relevant card scheme, it will carry out a number of checks – such as making sure that the card hasn’t been blocked, reported lost or stolen and that there are sufficient funds in the account – before debiting the exact amount of the purchase from Anna’s account.

Credit Card Processing Step 4:
Once the money has left Anna’s account, it will flow in the opposite direction back to the store (the retailer) where Anna initially handed over her card to pay. In short, the money goes from Anna’s bank, back through the relevant card scheme to the store’s bank where the funds are credited into the store’s bank account. At this point, the transaction is complete.

This is the typical Credit Card Processing which occurs when the cardholder decides to make a payment through his/her credit card and this process is followed across the globe for all kinds of credit card.

The same is true for making online credit card purchases. The only difference is that instead of punching in the PIN number on the Point of Sale POS terminal, you are required to key in your CVV number (usually 3 digit) at the back of your card. This is like your PIN number for online transactions. Some credit card issuers have seperate online PINs for using the credit card for online purchases and it depends upon the country of credit card and the credit card issuer.