Wednesday, June 6, 2012

How Processing Credit Cards Works

How Processing Credit Cards WorksBesides the merchant and their customers, several other entities are involved in processing credit cards. The following information will assist you and your sales personnel to better understand who does what in the acceptance of payments.

Who Takes Part in Processing Credit Cards

The following entities take part in the cycle of processing credit cards:
  • Cardholder is an authorized user of bank cards or other types of payment products.
  • Merchant is any business or non-profit entity that is authorized to take credit cards and other types of bank cards for the payment of products and services.
  • Processor is a bank or other financial institution that contracts with merchants to accept bank cards for the payment of products and services. A processor may also contract with third party entities to enable merchants to be processing credit cards.
  • Card issuer is a financial institution that owns the cardholder relationship. It issues bank cards and contracts with its cardholders for the billing and payment of transactions.
  • The Associations of Visa and MasterCard are publicly-traded entities that work with banks that issue cards branded with their logos and / or sign up merchants to accept bank cards. The Associations offer card products, promotes their brands, and set the rules and regulations governing the participation in their programs. They also operate the world's two largest electronic payments network for processing credit cards to facilitate the flow of transactions between acquirers and issuers.
Visa and MasterCard provide a collection of systems that includes:
  • An authorization process through which the card issuers can approve or reject individual bank card transactions.
  • A clearing and settlement platform that enables processing credit cards electronically between acquirers and issuers to ensure that:
    • Transaction data moves from acquirers to issuers for posting to the cardholder's accounts.
    • Payment for transactions is routed from the issuers to acquirers to be then credited to the retailers' accounts.

Rules for Processing Credit Cards

Merchants are required to follow certain basic rules for processing credit cards. The consistent adherence to these rules will help you to improve customer satisfaction and manage your business more efficiently.
  • Include all taxes in the total sale's amount. Any tax that the retailer is required to collect from the customer must be added to the total amount and should never be collected separately.
  • Accept all types of valid bank cards belonging to the brands listed in your merchant agreement.
  • Check with your processor on the minimum sale's amount that you are allowed to charge.
  • Comply with any maximum transaction amounts that may be established by federal rules.
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