Introduction
No matter what kind of business you have, at some point, you’ll need to accept credit cards. Why? Because businesses that take credit cards attract more customers who are ready to spend. In fact, people with credit cards spend about 40% more than those using debit cards! Plus, terminals like Innoviti’s have amazing offers for credit card users.
But do you know what happens when you swipe a credit card? Let’s break it down and explain how it works.
Parties Involved in a Card Transaction
Before we learn how credit card processing works, let’s meet the key players involved in every transaction:
- Cardholder:
This person uses a credit or debit card to pay for goods or services. They then offer the card to a merchant to pay for products or services.
- Merchant / Retailer:
The cardholder purchases goods or services from the shop or merchant.
- Card Issuer:
The financial organization (Rupay, Visa, Mastercard, Amex, etc.) that offers credit cards to the cardholders taking part in the transaction is known as the card issuer.
- Merchant’s Bank or the Acquiring Bank:
The acquiring bank is where the business, or merchant, has an account. When a customer pays for something, the money from the transaction is sent to this account once the payment is complete.
- Issuing Bank:
The issuing bank houses the customer’s bank account from which payments for goods/services will be deducted.
- Payment Gateway:
A payment gateway is the technology used at the PoS terminal where the customer and the shop interact. It reads the credit card information, encrypts it, and then sends it to the merchant’s bank through the payment processor.
- Payment Processor:
The payment processor is a company that helps share information between the card company (like Visa or Mastercard) and the banks to make sure the payment goes through.
Steps involved in Credit Card Processing
Payment Authorization
The first step in credit card processing is payment authorization. This step makes sure the card information is correct and checks for any signs of fraud.
Here’s how it works
Here’s how it works
- When a customer swipes or taps their card at an Innoviti terminal, the card’s details are sent as secret (encrypted) data to the merchant’s bank (called the acquiring bank) through the payment gateway.
- The payment gateway then sends the data to the payment processor using the credit card’s network (like Visa or Mastercard).
- The payment processor talks to the customer’s bank (the issuing bank) to check if the cardholder is who they say they are and if there’s enough money in their account.
- If everything is fine, the customer’s bank approves the payment, and the PoS terminal shows the transaction is successful.
Payment Authentication
The second step in credit card processing is payment authentication. This is when the money starts moving from the customer’s account to the merchant’s account.
Here’s how it works:
Here’s how it works:
- The payment gateway sends the “approved” message to the payment processor after the payment is approved.
- The payment processor uses the card network (like Visa or Mastercard) to inform the merchant’s bank (acquiring bank) that the payment is on its way.
- The payment processor deposits the money into the merchant’s account, keeping a small fee for its services.
- The customer’s bank (issuing bank) deducts the total amount (price + fees) from the customer’s account and sends it through the card network to the payment processor.
- The customer receives a receipt or invoice showing the details of the transaction.
Payment Settlement
Payment settlement happens after the payment is authorized. At regular times, the merchant sends a group (called a “batch”) of authorized transactions to the payment processor to finish the process. The payment processor checks (or reconciles) the batch of transactions to make sure everything is correct before sending it through the card networks to complete the process.
What Else You Need to Know
POS Terminal
Most card machines in stores can safely read special “chip cards” called EMV cards. Innoviti’s POS machines are fast and secure, making it simple for stores to take credit card payments.
Most card machines in stores can safely read special “chip cards” called EMV cards. Innoviti’s POS machines are fast and secure, making it simple for stores to take credit card payments.
Many businesses like Innoviti’s fully-integrated POS system because it doesn’t just handle payments. It also helps with other things, like paying employees (payroll), giving rewards to regular customers(loyalty programs), and more.
Clearing
The charge slip for the transaction will finally appear on both the retailer’s and the customer’s billing statement. Every day, the retailer sends a list of approved payments to their bank (the acquirer). The credit card firm receives the transactions, settles them, and sends the acceptable transactions back to the issuer.
The charge slip for the transaction will finally appear on both the retailer’s and the customer’s billing statement. Every day, the retailer sends a list of approved payments to their bank (the acquirer). The credit card firm receives the transactions, settles them, and sends the acceptable transactions back to the issuer.
This process usually takes 24 to 48 hours. The store gets a record of the payments, and the customer will see the amount they spent as a charge on their account. The customer then pays this amount to settle the balance.
Credit Card Processing Fees
When a customer pays with a credit card, the store has to pay a fee. This fee is usually between 1.3% to 3.5% of the total amount. The exact fee depends on things like the type of credit card, the kind of business (called the Merchant Category Code or MCC), and the payment company (like Visa, MasterCard, or American Express).
The cost of processing payments depends on things like the card networks (like Visa or Mastercard) and the banks that issue the cards. These can change how much the store has to pay. If you run a business, it’s important to watch these fees and plan your monthly expenses carefully when choosing which payment methods to accept.
Innoviti works with top Indian banks to make payment processing simple and hassle-free. Their goal is to improve India’s payment system, and they offer some of the lowest fees for credit card transactions in the country.
Conclusion
Now that you understand the steps and people involved in credit card processing, you can use your Innoviti terminal with confidence! Innoviti works hard to improve its services, helping stores, banks, and brands give customers a smooth and enjoyable shopping experience. Our products are designed to make payments easy, affordable, and hassle-free for everyone.