The Basics

Online Credit Card Payments 101

Credit cards payments are the no-fuss cash alternative that makes doing business easier for merchants and customers. The advantages go far beyond mere convenience.By accepting credit cards payments, merchants are able to:

1. Get fast, guaranteed payment for their goods and services
2. Expand customer-base, increase sales and revenue
3. Improve business cash flow with same day settlement

Providing credit cards payment as an option to your customers, your business becomes an integral part of the payment processing system. Which is why it is important to have basic knowledge on credit card payments that will help you understand the major payment processing components and how they affect the way you do business.

Credit Card Payments Process 

‘Merchants’ are companies/business engaged in the sales of goods or services that accept credit card payments. For a merchant to be able to accept these payments, they are required to open a ‘Merchant Account’ with a financial institution called ‘Merchant Banks’ or ‘Acquiring Banks’.

These banks then accept each ‘Net Settlement Amount’ from the credit card issuing bank for every successful transaction made. A ‘Net Settlement Amount’ is the total amount after the transaction fees, or ‘Discount Rates’, are subtracted from the actual amount of transaction.

Below are the fundamental stages of each credit card payment transaction:

  1. A transaction begins when a purchase is made with a credit card at a particular merchant by a cardholder. Be it a swipe of the magnetic stripe on a point-of-sale (POS) terminal, over the phone or a manual key-in of the card account number into e commerce website, the details of the transaction will immediately be routed by payment gateway to the processor’s network.
  2. The processor then connects with the relevant payment brand system (Visa, Mastercard, AmEx or so forth) network to transmit an ‘Authorization Request’ to the credit card issuing bank’s network system, where the issuing bank will verify the cardholder’s authenticity and sufficient funds available in the account.
  3. Upon approval from the issuing bank, a ‘Deposit Transaction’ is transmitted and the merchant can then release the items purchased by the cardholder.
  4. The ‘Net Settlement Amount’ is subsequently deposited into the merchant’s account, usually within the day.

While these payments systems are 100% computerized, there are instances when exceptions or irregular transactions will be routed to a service employee for manual inspection and processing. Common transactions which trigger such a response are:

  1. Unusual and out-of-the-norm spending patterns
  2. Purchases for products or services within the ‘High Fraud’ category
  3. Transactions performed out of the country of the cardholder’s residence
  4. Credit card is reported lost or stolen