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How Does Credit Card Processing Work?

by Confidential Banking #1 Merchant Processing Services

Setting up a merchant account is one of the wisest things you can do for the growth and expansion of your online business. After all, a merchant account is what makes it possible for you to process credit card payments on your website.

But how does the credit card processing system even work?

There is no reason why you should be familiar with the ins and outs of how the payment processing system works on your website, as your payment processor or acquirer will handle everything on your behalf. However, it is still a good idea for you to get to know the basics.

Understanding The Mechanism

Let's try to understand how the card processing system works with an example. Keep in mind that these steps are similar for both low risk and high risk merchant accounts.

  1. A customer buys something worth $100 from your online store and pays with a credit card.
  2. The $100 amount will first be transferred to the payment gateway, where payment will be authorized with a small deduction (say $0.5).
  3. The ($99.5) amount will then be transferred to the appropriate processor and submitted to the card interchange after a further small deduction (e.g., $0.5).
  4. After the transaction is cleared at the interchange, the $99 amount will be transferred to the issuing bank with a further deduction (another $0.5). This is where the issuing bank will verify the flow of funds to the customer's credit card.
  5. If the issuing bank approves the transaction, the $98.5 then reaches the processor at the acquiring bank.
  6. Once the payment is authorized by the acquiring bank, the bank deducts a small amount ($1) and the final amount of $97.5 gets deposited into the merchant's account.

(Note: In the case of high risk merchant accounts, such as an online poker merchant account, the fees are almost always higher than those of low risk merchant accounts.)

Today, Online payments are exclusively made electronically, especially with the extensive use of credit and debit cards. So, if you still do not have a credit card processing solution on your website, you are losing out on a ton of customers.

 


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About Confidential Banking Innovator   #1 Merchant Processing Services

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Created on Jun 5th 2020 02:07. Viewed 328 times.

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