How Credit Card Payments works ?

Who is involved in the authorization and settlement process ?

1. CardHolder - a person whose name appears on the credit card or debit card

2. Business - merchant

3. Acquirer - the bank which is gives POS terminal to the merchant for the payment processing.

4. Payment Processor : it is used to share the information between parties such as business, card network and issuer.

5. Card Network - major credit card companies such as american express, visa, mastercard.

6. Issuer : financial institute or bank which is issuing card to the card holder.

how does card authorization works ?

1. it starts when we went to the shop (merchant) we liked something and now we are making a payment, so when we swipe our card on the POS terminal that payment processor is going to reach out to the issuer Bank means which bank or financial institute has given me this card, it will reach out to that and share all the details such as name, balance, amount , pin, then issuer bank will verify that details and based on that it will return whether trasaction is successfull or fail.

2. once this is done the amount will be deducted from the card holder bank or card but it won't be credited to the merchant that is the separate process of settlement.

Capturing and settlement.

1. its up to the merchant when he/she wants the money in his bank account

2. Capturing is when the merchant will ask for the funds and settlement is when the funds are actually being moved.

Card payment process

From start to finish, here’s each step of a card transaction process and how the main players work together:

• The customer submits a credit or debit card for payment, either online or in person.

• For in-person transactions, the business’s card reader and point-of-sale (POS) will accept the card information and relay it to the business’s payment processor.

• For online transactions, the same thing happens, except there is no physical card reader. The customer either manually inputs their card information, uses a digital wallet to pay with a stored credit or debit card, or uses a card on file with the business.

• The business’s payment processor (Stripe, for example) sends an approval request to the card issuer via the card network.

• The card issuer checks to verify three things related to the transaction:

  • The card itself is valid.

  • The cardholder’s identity is verified, typically by matching the billing address provided during checkout to the address on file for the card.

  • There are sufficient funds or credit available to cover the amount being requested for approval.

• If the card issuer is able to verify everything, they will approve the transaction and send an authorization code back to the payment processor through the card network.

• The payment processor communicates the approval back to the acquirer and the business’s payment terminal, online or in person. This usually takes place within a few seconds.

• Once a transaction is approved, the acquirer will retrieve the funds and hold them in the merchant account before transferring them to the business’s main business bank account, usually within a few days.