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.

Credit History Credit Profile: Credit Bureau Agencies

Now that there are thousands of cards available in the market. Its easy for you to apply for a credit card and wait for the credit card to arrive. You can apply for the credit card on phone, you can apply for credit card online through website, or you may visit a bank branch or request a customer services representative to visit you for the credit card application process.

But how does the credit card company decides whether to issue a credit card to a particular individual or not? That's where the Credit History or credit Profile comes into picture. Remember, the Credit Card given to you is a big liability both to the credit card holder and the credit card issuing company. What if a company issues me a credit card with a 100,000 limit and I spent all the money on the card and run away. To avoid such cases, there is a concept of credit history checks or credit profile checks. There are Credit Bureau or credit rating agencies which maintain a credit record or credit profile for each individual. The credit reference agencies maintain the credit records of individuals and the credit card companies refer to these records before issuing any credit cards to an individual.
There is a lot of information stored by the credit reference agencies. However, it’s your data and details. You have the right to ask for the information you may need.

What kind of information do these credit reference agencies store?

On a broad level, the information held by the credit reference agencies may include the following:

• Your credit history details for financial transactions
Credit reference agencies store records showing how you have made payments on credit agreements for the past 36 months. Other information can also be held including whether you have a joint account or whether you have raised a query on your record.

• Court judgements of your financial transactions
Credit reference agencies receive and hold information on court judgments, bankruptcies (or sequestrations in Scotland), bankruptcy restrictions order and any voluntary arrangements that may have been made with your creditors.

• Other credit applications
Credit reference agencies hold ‘search’ records, sometimes known as ‘footprints’. These show organisations which have looked at your report over the last 12 months. These will be visible to you on your credit report and visible to lenders who may decide not to lend to you if you have made a large number of applications over a short period of time.

• Electoral Roll
Lenders look at the electoral roll to check that you live at the address on your application form. This can help prevent fraud and money laundering.

Which credit reference agencies are operating in the USA UK and India?
In the United States, the legal term for a credit bureau under the federal Fair Credit Reporting Act (FCRA) is consumer reporting agency — often abbreviated in the industry as CRA.

In UK, there are 3 different credit reference agencies that work for maintaining the credit ratings of the UK residents. The are Experian, Equifax and CallCredit.

Below, you will find the details of all these organizations and their contact addresses:

EXPERIAN:
PO Box 8000
Nottingham
NG80 7WF
0870 241 6212
www.experian.co.uk

EQUIFAX:
Credit File Advice Centre
PO Box 1140
Bradford
BD1 5US
0870 010 0583
www.equifax.co.uk

CALLCREDIT:
Consumer Services Team
PO Box 491
Leeds
LS3 1WZ
0870 060 1414
www.callcredit.plc.uk

In India, the establishment of Credit Information Bureau (India) Limited (CIBIL), India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors' portfolio quality.

Related: How to Select a Credit Card & Credit Card Safety Tips

How to check your credit records?

You can contact each of the three credit reference agencies to ask for a copy of your credit record at any time. There is a statutory fee of £2 for each report. Reports are also available online but may cost you more. The information held by each agency can vary so it is vital to check all three. We recommend you check your record with each agency at least annually. Not only is this a good way of ensuring that the information held about you is correct but it can also provide peace of mind that you have not been victim of identity theft and that no-one has successfully applied for credit in your name.

In an extreme case, If you believe that you have been a victim of ID fraud you should contact each of the organisations above and keep copies of any correspondence.You may be advised to report the theft to the police.You can get further advice and guidance from www.identitytheft.org.uk

How to select a Credit Card

With hundreds of credit card companies flooding the markets with thousands of credit card, it is important to know which one is the most suitable credit card for you. Since each individual is different, so are their financial needs. Hence, the credit card which one should choose should be given a thorough consideration. For. e.g. a business executive who travels abroad frequently, should opt for a corporate credit card which allows him less charge for forex transactions on his credt card. On the other hand, a student who may not have a regular income, should opt for a credit card which is free of any annual fee and has a low interest rate.

Therefore, different cards will suit different people’s needs. The following will help guide you through the credit card application process and the things you should think about at each stage.

Before selecting a credit card, ask yourself the following important questions:

1. Do I really need a credit card? How much can I afford on it?

2. What do I want the credit card for?

• Just to pay for things and not for credit at all – I intend to pay off my balance in full every month
• To spread the cost of spending over a number of months
• To take advantage of special offers (e.g. lower rates for balance transfers)
• For emergencies – as a standby to give me easy access to credit if and when I need it
• To use for a specific purpose such as shopping on the Internet or overseas
• To support a charity or other organization

3. What credit card features are important to me? What information do I need to compare?
• The interest rates – for purchases, balance transfers, cash advances and credit card cheques
• The length of the interest free period for purchases
• Incentives and benefits such as cashback, rewards or loyalty points
• Being able to manage my account online
• Using my credit card when I am abroad

Once you know what kind of credit card you want and how you intend to use it:

4. Make a shortlist of credit cards
Once you know what you are looking for, talk to card companies, look online, look at the Summary Box for each credit card and make a ‘top five’ list of credit cards that are right for you.

5. Compare Credit cards
Get a copy of the Summary Box for the cards in your shortlist. Have a look at all the different features and decide what card is most suited to what you want it for.

6. Review the Terms and Conditions of the Credit Card
Make sure you have read, in full, the terms and conditions of the credit card that you decide to apply for. This is important to ensure that you fully understand your responsibilities and obligations.

7. Apply for a Credit card
You can apply for your card in person, on the phone, by post or online. Remember, you need to be completely truthful in your application. As part of the application you will sign to indicate your acceptance of the terms and conditions.

Related: Credit Card Safety Tips

8. The Credit card company’s decision
Your card company will always run some credit checks on you and look at your application form and any past payment behaviour before deciding if you are eligible for a credit card. If more than one interest rate is available for a credit card, the card company will decide on what rate and credit limit are appropriate, depending on what they think you can afford to pay back.

9. Receiving your Credit card
Some card companies may require you to activate your card before you can begin using it. If on receipt of your card you decide that it is not for you then you should immediately contact the card company and ask to cancel the agreement.

10. Tidy up loose ends
If you’re transferring a balance from another credit card or closing an old account remember to check that any regular or recurring payments have been cancelled or moved from your old credit card. Choose a PIN you can remember. If you don’t think you’ll be able to remember the PIN that is issued for your new card you can always change it at any cash machine to something more memorable.

Safety Tips for Credit Card Holders: Safe Usage of Credit Card

The growing usage of Credit Cards across the globe has also invited a gorwing misuse of them. Before just subscribing to multiple Credit Cards, the individual must also be aware that a credit card is not a liberty or priviledge, its a big liability. Even if you dont use the credit card, just because a credit card has been issued in your name means the liability of that credit card usage and misuse is onto you. What if you have a credit card, and you are not using it. But suppose you drop or loose the credit card and someone else misuses it, then it becomes your responsibility to repay back the money spent by the miscreant.

Though various credit card companies have different protection schemes, like no liability from the time you report a card loss to the credit card company, but ultimately the responsibility lies with you. Here are a few important Safety Tips for Credit Card Holders that each cardholder should be aware of:

Always guard and protect your card and card details
Most of the credit card thefts happen when the card holder ignorantly reveals his credit card (or its details). Make sure you protect your card by keeping it in a safe place when not in use.

Don’t let your card out of sight when making a payment
Another place where people may end up revealing their credit card details. Especially while shopping at retail outlets like Tesco, Asda or Sainsbury’s, where there are long queues of customers standing behind you. People may be able to see your card details and use them later on the internet. Hence be careful. Always check around if a camera is focused onto the payment counter. Chances are that there will be one. Cover your hand with another hand while typing your PIN no. for the credit card transaction

Never write down your PIN or disclose it to anyone, even if they claim to be from your bank, building society or the police.

Don’t use a PIN easily associated with you. For example, part of your telephone number or your year of birth
This is another funny mistake people do – keeping easy pin nos. Try something like the middle 4 digits of your bank account no. or postcode digits of your first school – But don’t tell it to anyone

Always check the details of your purchase before inserting your PIN, especially the amount displayed on the screen
Sometimes, retailers and restaurants may charge you for using your card. So check the money to be deducted from your card and that on the actual bill.

Never leave your cards unattended in a bag, briefcase or jacket pocket in a public place and keep your bag or briefcase on your lap
This is another common mistake, especially while traveling. Avoid keeping your card out of sight
Check your receipts against your statements carefully and report any unfamiliar transactions to your bank or card company immediately
This will ensure that if there has been a misuse with one or two transactions, then further misuse can be traced out as early as possible

When you want to dispose the credit card, shred or rip up all your receipts that contain information relating to your financial affairs
Before you dispose off your old credit card, make sure it is expire, with respect to the expiry date mentioned on the credit card. If the expiry date is far away and still you want to dispose off your card, make sure you call your bank, ask them to block the card and then ask them for a written confirmation that the card has been blocked. Only after that dispose off your card.

Cut expired cards through the magnetic stripe or chip when replacement cards arrive
While swiping your card, it is the magnetic strip that authenticates your credit card, as all the data is stored in the magnetic strip. Make sure you damage the strip as soon as possible.

Sign new cards as soon as they arrive
This will ensure that if you loose your card, the person receiving it cannot use it at any retail store because the payment desk will match the signature on the card with that of the person signing the payment slip.