How Credit Card Payment Gets Processed
Very few people curious to know, how exactly credit card payment gets processed. Of course, you will not get anything out of knowing behind the scenes of credit card processing but, you can understand why banks will give credit cards for free.
There are four people involved in any credit card transaction:
1. Subscriber or the card holder:
The person owning the card to make purchases on credit to be able to pay later.
The business, shopping mall, restaurant, etc. who recognizes and accepts credit card for rendering the services or products sold to the customer who is the card holder.
An institution who processes the credit card services to the merchant, i.e issuer of Credit Card. The bank issuing the credit card to its customers.
4. Credit card cartel:
Credit card networks like VISA, MasterCard, etc. acting as a gateway between the bank and the card issuer to authorize and finance.
When you go to a computer peripheral shop to purchase an updated LCD monitor costing around INR 6,000/-, you opt to use your bank X credit card to conclude the purchase. While observing on the obverse or reverse side of the card, one can see VISA, MasterCard, etc.
Once the credit card is given to the merchant, the receiver of the card will try to process the payment by swiping the same in a machine labeled with bank Y. After a brief time, the merchant will request the amount in the invoice raised and once it accepts, he’ll handover a receipt will be handed over to the buyer to sign on one out of two print outs, the signed copy retained by the merchant and the other given to the customer/buyer. Once that is done, the merchant will give the bill for purchase made. The process can be easily understood by viewing the following illustrative chart.
Credit cards serve a great purpose of avoiding to carry heavy cash in the wallet especially while going for heavy shopping and the customer enjoys not only the credit for 40 to 45 days but also enjoys insurance cover. As per RBI’s directives, the banks will obtain written declaration for the insurance cover from the credit card holder the particulars of nominee/s in the event of accidental death or disability benefits and ensure recording of the same by the Insurance Companies. Banks will issue a letter to the credit card holder with the details of the name, location and telephone numbers of the Insurance Companies handling the claims relating to the insurance.
Usually, most banks attempt to extra money from their customers when opportunity arises to justify giving credit for 45 days by pretending not to charge any fee.
The actual deal is banks will make all efforts to lure the customers to take their cards by saying ‘no processing charges’ but will indirectly cover themselves up by charging high interest rates especially when there are dues on the credit card payments.
Arrangement with Merchants: Banks’ main business is to make money and that is done through fees from merchants. In a city there will be a number of merchants. Every shop owner like restaurants/ hotels, shops, theaters, malls, etc. will need a card association banker for processing the credit card payment.