Purchasing an item with a credit card undergoes a series of a complicated process before each party, the buyer and the seller, can seal the deal with a real money transaction. The buyer only has a card on his/her hand, and the seller receives nothing but digital financial statement.
How can the system work? What actually happens the moment you swipe your card on the magnetic card reader? Read this article further if you want to know.
Basic terms to know
Before discussing deeper into the process, you need to know who are the players in a credit card transaction.
Consumer
You are the consumer. The time you want to buy an item with a credit card, you have become the store customer and are liable to the terms and agreement for the credit card use.
The basic assumption is that you know how much your card charges you, and you are aware of the consequences are if you do not pay your debt.
Consumer bank
The bank in which you save your money holds the pivotal role of your financial information. They are the one who is going to determine if your transaction can proceed or not. And it depends on whether you have the necessary amount of loan allowance for the item you purchase.
Merchant
Merchant is the store with whom you do the transaction. You are expecting to pay the price for the item the merchant sells. But a transaction with a credit card will not transfer your money directly to the merchant’s account. Instead, the fourth party is involved.
Merchant’s bank
Unless your credit card bank is the same with the merchant, your purchase is going to be a transaction between two different banks.
Credit Card Processor
Credit Card processor serves as the third party that regulates the communication between the merchant’s and the customer’s bank. Services, such as MIDTRANS and Paysera, offer surveillance and a gateway service for their clients. They will make sure that the money transferred from the client’s customer is as agreed upon the transaction.
Card Network Association
VISA and MasterCard are the two examples of Card Network Association. What they do is not to supervise the approval of a credit card. Instead, they offer a network in which the transaction can take place.
The process
Once you swipe your card on the reader, the merchant will gain the purchase information and put the amount of money that is going to be deducted from your account. This transaction information is then processed by a processor.
The processor will send the information to the Card Network and then passed to the customer’s bank. The verification and authentication happen at this stage. If your balance or allowance is not adequate to make the purchase, the payment request will be rejected. Otherwise, it will be approved.
The last process takes place at the merchant’s counter. There you will know whether your card has been ‘approved’ or ‘declined’.
How quick it is
Six parties are involved in a transaction, and with the modern Internet connection, the communication between them can be done in no more than 20 seconds.
That is how complicated a credit card use is. So the next time you are wondering what happens with that simple swipe of plastic card of yours, you will know that it is more than it seems.