Credit Card Transactions: A Helpful Guide On Approving Payments

Since 2010, the volume of credit card purchases has been steadily increasing. In less than a decade, credit card processing spending has more than doubled. This demonstrates that refusing to accept credit cards as a form of payment might have negative consequences for your business’s growth.

Business owners require various solutions, ranging from mobile device payment processors to the capacity to accept credit card payments online. But one thing they all have in common is a desire to accept credit card payments, which allows them to serve more clients and raise income.

Nonetheless, many business owners regard credit card payments as a difficult chore. The good news is that it doesn’t have to be that way. Here’s a step-by-step approach to approving payments. 

Who Is Involved In Card Payments?

A card transaction involves the following players:

  • Cardholder- The customer who pays for an item or service.
  • Merchant- is a company that sells goods or services.
  • Acquirer- The banking institution that processes debit and credit card transactions on behalf of the merchant.
  • Card Networks- Organizations like Visa and Mastercard that send transaction details from the acquirer to the issuer.
  • Issuer- a bank or credit union that issues credit or debit cards in collaboration with credit networks. 

Stages Of a Credit Card Transaction Cycle

Before it reaches your merchant bank account, a credit card transaction passes through several phases. Because the transaction life cycle is complicated, this article explains what happens once your consumer taps or puts their card into the terminal, as well as how authorizations become funds in your bank account.

It’s incredible how much happens behind the scenes in seconds while a transaction is processed. 

Authorization Stage

Authorization is the initial stage of the credit card cycle. A customer gives a merchant their payment card information, either in person or secure remote means. The acquirer and the payment processor both receive card information.

After that, a transaction goes through the card associations before reaching the issuing bank.

The issuing bank verifies that the account is in good standing and that there is enough money to cover the transaction, then sends an authorization or decline code to the card association, which then passes it on to the acquirer.

The acquirer then informs the merchant of the authorization or decline, and the transaction is approved (or declined). One or more security and anti-fraud filters may be used at each level of the authorization procedure. The entire process is completed in a matter of seconds.

Batching Stage 

The authorization step begins immediately, followed by the batching phase. The batching phase is usually completed after each working day. During this step, the merchant sends its payment processor the authorization codes for all credit card batches of transactions.

The payment processor then categorizes each transaction by the credit card issuer’s banking institution. In a settlement stage, this financial institution subsequently pays the merchant the money owed to them. 

Clearing Stage

The clearing procedure occurs in the middle of a credit card transaction cycle. The transactions will be transmitted to the card networks once the acquirer gets them from the processor.

The transactions are subsequently delivered to the issuing banks, which are the farthest away. The issuers charge the transaction amount to the cardholders’ accounts, then route the payments through the card networks. The card networks transfer the funds to the acquiring bank after obtaining the requested amount from the issuers.

Funding Stage

This is the shortest and most essential stage of the cycle. When the acquirer gets payment from the issuer via a card network (Visa, MasterCard), they (usually) pay the merchant the whole amount, and the deposit is completed.

The word “usually” is used because, in most circumstances, the acquirer bills the merchant every month for the transactions. Merchants who want daily billing would receive the entire sale amount minus the acquirer’s costs. 

Three Ways To Accept Credit Card Payments

With the rise of e-commerce and digital payments, businesses and service providers who do not give their customers card payment choices risk losing sales. You can accept credit card payments from your consumers in a variety of ways. You should become familiar with your options so that you can select the ideal one for your firm.

Here are three popular alternatives to consider:

1. Traditional POS systems

2. Mobile POS systems

3. Online payment processors or payment aggregators, which may include mobile POS systems. 

Accepting credit card payments might increase your revenue, but it’s also a risky business. Scammers are unheard of in a perfect world, where everyone is honest and upstanding. However, we all know this isn’t the case.

Even bank-approved card transactions, such as those involving a stolen card or credentials, may not be authorized by the cardholder. There’s a substantial risk you won’t get paid at all if this happens. While a result, as you negotiate the world of card payments, you’ll need a good risk management solution.

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