When you pay for your coffee with your bank card, you swipe it at the terminal, take the receipt, and go on with your business. This is a typical action for you which takes no more than a couple of seconds to perform. But you don't think about the fact that during these few seconds, a lot of transactions take place which is hidden from your eyes, and, as a result, the money from your account is transferred to the coffee seller. We will describe how the transaction is processed and who is involved in this process in this article.
What is transaction processing?
The client pays for the coffee with his card, and the seller receives the payment in his bank account. The connecting link in this chain is the company providing the transfer of funds from the client to the merchant – the payment processor. It is essentially an intermediary between the seller and the buyer's bank that processes the transaction. It checks whether it is possible and either approves or rejects the transaction as a result of this check. Before debiting the card and transferring it to the merchant's account, you should make sure:
- whether there is enough money in the card account to make the payment;
- whether the card with which payment is made is valid;
- whether there are any restrictions on the card.
If the amount on the buyer's account is sufficient for payment, and if the card is valid and has no restrictions, the payment processor confirms the transaction and transfers funds to the bank account of the seller of the goods.
The payment processor not only transfers funds but also secures the transaction following PCI standards. It uses security protocols and processes all payments through encrypted connections. When choosing a payment system, you should ensure that it is compatible with the PCI. Only then, maximum security of all transactions will be provided.
Bank card processors
When you pay for your coffee with a bank card, the following parties are involved in the payment process:
- The cardholder. You are the person who decided to have a cup of coffee and pay with his bank card. You can swipe your card over the terminal, put it with a chip to the reader or enter a card number on the payment portal. The card can be debit or credit.
- Seller. In this case, it is a coffee vendor. But in reality, it could be any store, outlet, or company providing goods and services. The merchant has a device to read the bank cards of his customers. The merchant pays the transaction processing fee to the bank or issuing company that issued the card.
- Acquiring bank. This is the bank that issued the merchant the bank card reader equipment and the merchant account for crediting customer funds.
- Payment system. This is the intermediary between the acquiring bank and the issuing bank. The best-known card networks are Visa and MasterCard. The payment system transmits information from one bank to another and sets fees and rules.
- Payment gateway. Simultaneously with the payment processor, the payment gateway is involved in processing the transaction. It is the gateway that establishes a secure connection to encrypt bank card data and transmits it securely while the payment processor transfers the funds. The gateway verifies the authenticity of the card provided by the buyer. It also ensures that the buyer's personal information is not leaked during the transaction.
- Issuing bank. This is the bank that issued the card to the buyer. It is responsible for authorizing the data of the bank card.
How does bank card processing work?
It takes a few seconds to process a bank card when paying for goods or services. During this time, authorization and the payment itself take place. If the card does not pass authorization, the transaction is rejected, and if passes, the calculation takes place. Let's look at each of these stages in more detail.
The initial step is to check that there is enough money on the buyer's card and that the issuing bank pre-approves the transaction. It happens in the following way:
- The cardholder swipes it at a terminal, inserts it when paying for a purchase, or enters the card details when paying online;
- The merchant's reader sends the card data and information about the transaction to the bank acquirer via the Internet or a phone line;
- the acquiring bank transmits the received information to the payment system Visa, MasterCard, American Express, etc.;
- The payment system transmits the received information to the issuing bank that issued the card to the buyer;
- The issuing bank checks the card number, CVV verification code, and transaction information to check if it is not fraudulent. It's the bank that makes sure the cardholder has enough money in his account to pay the amount claimed by the merchant;
- The issuing bank sends a response through the payment system to the acquiring bank;
- The transaction will be approved if the issuing bank has checked all the information on the buyer's card and found no traces of fraudulent activity. Otherwise, the ATM or terminal screen will inform about the rejection of the transaction.
This is an average description of how the transaction is processed. The procedure may vary slightly, depending on whether the payment is made at a retailer or an online store. In either case, the merchant should create his acquiring bank account and link it to the point-of-sale system.
Accounts can be created not only at banks but also at organizations that provide transaction processing services. One such company is Wallester. Working with such an organization is much easier than with a bank. And the cost of its services is quite acceptable for any business.
This stage takes place without the buyer's participation. It involves the issuing bank, the acquiring bank, the payment system, and the seller. Basically, it is a transmission of encrypted information through the chain from one party to the other and back. This removes additional transaction processing fees, which are paid by the end user of the service – the merchant.
The merchant system stores all the bank card transactions of its customers. Most often, at the end of the day, the merchant sends a batch of the day's authorized transactions to the acquiring bank. He confirms each monetary transaction in the batch in turn and sends the same batch through the payment system to the issuing banks. Once all steps have been completed, the acquiring bank credits the merchant's merchant account with all transactions minus commissions. Funds also come in a chain from the issuing bank through the payment system to the acquiring bank. In this case, the payment network acts as an intermediary between the two banks.
The buyer, for example, the cardholder, do not visually see all these processes of transmitting information on transactions and money. He can only control the withdrawal of funds from his card. When he logs into his online banking account, he can see that a recent coffee payment transaction was initially in “pending” status and then changed to “sent.” This means the money from his account has been sent to the merchant's account.
For both the customer and the company accepting payment from him, it is significant that the transaction processing is as fast and secure as possible. To achieve this, you need to choose reliable bank card processing organizations. Wallester is one of these companies. To learn more about the benefits of cooperation, just visit webpage of Wallester.