How credit card processing is perfomed.

We need to know what a credit card is before we deal with how credit card processing is done. A credit card is a small plastic card that is given to users to be used as a system of payment. It enables its holder to purchase goods and services basing on the trust that the holder of the card will pay for these goods and services. The issuer of the card comes up with a revolving account and provides a line of credit to the customer from whom the user can then borrow money for payment purposes to a seller or as a cash advance to the user.

In the world of credit cards, the client is called the “cardholder”. They receive their Master Card or Visa credit card form the issuing bank.  It is unnecessary for the cardholder to have any sort of relationship with the issuing bank. In fact in most cases, the cardholder doesn’t have an account with the issuing bank. The issuing bank is simply the bank that the card holder decided to get his or her credit card from.

Credit card processing procedure

The following are the steps that are followed in credit card processing:

• A transaction starts immediately when the magnetic stripe on the backside of the credit card is swiped through a credit card terminal, or when the credit card account number is fed manually into the system by the cardholder or the merchant. This will enter the transaction information into the network of the processor
• An “authorization request” is then generated to enable credit card processing.
• The processor will then link up with the Visa/MasterCard network so as to send the authorization request to the computer network of the issuing bank.
• The issuing bank then goes ahead to verify that the credit card received is valid and that the cardholder has sufficient money in the account available(open to buy) to carry out the transaction.
• The issuing bank then effects a “hold” for that amount which is placed against the Cardholders open to buy thus reducing the total amount of the cardholder’s future transactions for his/her open to buy
• Immediately an approval is received, a “deposit transaction” will be sent which finally seals the transaction. After this then the merchant will go ahead and release the items that the cardholder has purchased.
• Finally the net settlement amount is then deposited to the merchant’s account by the end of that business day and the credit card processing is considered finished.

There are instances when credit card processing hits a snag and people have to be involved to complete the transaction. Although the entire credit card processing is usually computerized, the Visa/MasterCard network is programmed many triggers that will make the process need an intervention of a human being for closer scrutiny. Most of the common triggers include:

• Spending patterns that are unusual and they don’t tally with the Cardholder’s normal purchases.
• Buying products or services that are deemed to be of “high fraud” category.
• Buying goods or services outside the country.  As a measure, most Card issuers request Cardholders to notify them if they are travelling abroad so that they cannot experience difficulty in the credit card processing.