How to Accept Credit Card Transactions

When you accept credit card transactions, there are multiple interactions occurring among multiple participants. There are three basic processes that make up each transaction:

1. Authorization is the process through which card issuers either approve or decline each individual bank card transaction.
2. Clearing and settlement are the processes that involve the electronic exchange of transactions between acquiring banks and issuers as follows:
• Transaction data is exchanged between the acquiring banks and the issuers for posting to the cardholders' statements.
• The payment for each transaction is processed from the issuers to the acquiring banks to be later credited to the card acceptors' account.

The following article will review how merchants accept credit card transactions in both face-to-face and non-face-to-face environments. Payment processing occurrences and activities can possibly vary insignificantly for any one card acceptor, processing bank, or card issuer, depending on card type or transaction environment, as well as the POS system used.

How to Accept Credit Card Transactions: Transaction Authorization

Here is the credit card transaction authorization process:

1. The customer offers a bank card to pay for an item. For non-face-to-face transactions, the customer gives the retailer he account number, address, expiration date and card security code.
2. The card acceptor swipes the card, keys in the dollar amount, and routes an authorization request to the processing bank. For non-face-to-face payments, the account number and the other data can be digitally entered online or key-entered.
3. The acquiring (processing) bank routes the authorization request on to MasterCard or Visa (the Association).
4. The Association sends the request on to the card issuer.
5. The issuer authorizes or declines the transaction.
6. The Association routes the card issuer's authorization decision to the acquiring bank.
7. The acquirer sends the response on to the card acceptor.
8. The card acceptor receives the authorization decision and finalizes the payment accordingly.

How to Accept Credit Card Transactions: Clearing and Settlement

For authorized transactions the payment process goes as follows:

1. The card acceptor deposits the payment receipt with the acquiring bank.
2. The acquirer credits the card acceptor's account and then submits the transaction to the Association for settlement.
3. The Association facilitates the settlement, pays the acquiring bank and simultaneously debits the card issuer's account. Only then does it send the payment receipt to the card issuer.
4. The issuer posts the payment to the cardholder's account and issues the monthly statement.
5. The cardholder gets the statement and makes the payment.