Ever wondered how those little pieces of plastic in your wallet actually work to make purchases? Here’s a quick rundown on how credit card payments work!
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In order to make a credit card payment, you will need to provide your credit card number, expiration date, security code, and billing address. Your credit card issuer will then process the payment and you will be charged interest if you do not pay off your balance in full each month.
The Credit Card Payment Process
Before a credit card purchase can be completed, the credit card must be authorized. This is done by the customer swiping their card through a card reader or by entering their card information online. Once the card is read or the information is entered, the purchase amount is sent to the credit card issuer for approval.
If the issuer approves the purchase, they will send an authorization code back to the merchant. This code lets the merchant know that the customer has the funds available to complete the purchase. The authorization code also acts as a guarantee that if the customer does not have enough funds to cover the purchase, the issuer will still pay the merchant for the full amount of the sale.
Once a purchase has been authorized, the customer will need to provide their signature or PIN to complete the transaction. Once this step is completed,
the sale is considered finalized and cannot be canceled by either party.
Batching is the process of collecting credit card sales transactions and sending them to the acquirer (acquiring bank) at regular intervals. The acquirer then forwards the batch transactions to the appropriate credit card association. Once received, the credit card association sorts out the individual transactions and distributes them to the appropriate issuing banks (the bank that issued the credit card to the customer). The issuing bank then posts the transaction to the customer’s account.
Clearing and Settlement
The final stage of the credit card payment process is known as clearing and settlement. After a cardholder has made a purchase, the merchant will submit the transaction details to their acquirer. The acquirer will then send the transaction details to the cardholder’s issuing bank.
The issuing bank will review the transaction and decide whether or not to approve it. If the transaction is approved, the issuing bank will send a notification of approval to the acquirer. The acquirer will then notify the merchant that the transaction has been approved and the funds are being released. Finally, the funds are transferred from the issuing bank to the acquirer and then to the merchant.
In conclusion, credit card payments work by the cardholder making a purchase with their credit card, which is then forwarded to the merchant. The merchant will then request payment from the card issuer, who will in turn charge the cardholder’s account. Finally, the card issuer will send a payment to the merchant to settle the transaction.