Kris Kiger, EVP managing director, visual designer at R/GA. Leading the 150-plus…
Kris Kiger, EVP managing director, visual designer at R/GA. Leading the 150-plus global visual team, she has overseen award winning projects for brands including Nike, L'Oreal, Target, Mastercard, and Microsoft.
Having the intimate knowledge about the inner-workings of the bankcard system is not mandatory but then there's no harm in knowing it. Understanding how things actually work is a good approach, as fees are incurred at times at one or the other stage. The main components in the whole process involve:
1. Key players
2. Credit card authorization
3. Credit card clearing and settlement
Credit card processing services are so quick and timely that within few seconds, transaction details are transferred from the terminal to a processor. Later, this information is passed through the card network to the issuing bank. Once all this happens, the issuing back sends an authorization back to the processor via the network.
In the whole system, obtaining an authorization for a transaction remains the first step. Before the sales are deposited in the bank account of the business, it is necessary that the authorizations are settled. Settlement and authorization are the two major processes of transaction. If ever this happens a failure be it complete or partial, it leads to sales not deposited or increased costs.
The Key Players
Key players involved in authorization and settlement include:
2. Service Provider
3. Acquiring Bank
4. Issuing Bank
5. Card Associations (Visa and MasterCard)
Let's discuss every player one by one.
1. Cardholder: This term refers to the one who gets a credit or debit card from an issuing bank. The card is then presented to the merchants as payment for the services or products.
2. Service Provider: Service provider is the business that is engaged in the sale of services or products. It can also be said that it is a business that allows accepting credit as well debit cards.
3. Bank of the service provider: It is often referred as an acquiring bank. This is because it creates and maintains accounts and enables businesses to accept credit and debit cards. Moreover, these banks provide software and tools to accept promotional materials, cards and other important elements needed in card acceptance to the merchants.
4. Issuing Bank: An issuing bank provides credit cards to the customers. It is important to know that this bank is a member of the card associations. These banks pay the banks for the sales or purchases made by their cardholders. Repaying the issuing bank as per the norms of card agreement is the responsibility of the cardholder.
5. Card Associations: As MasterCard and Visa are not banks, they serve as a guardian and clearing house for their card brand. In addition, they monitor the community of ISOs, MSPs and financial institutions that work jointly to support credit card processing and electronic payments.
This was all about the important parameters of credit card processing. To keep transparency in the credit card processing mechanism, keeping these important points in mind is quite helpful.