How Does Online Credit Card Processing Work?
While credit card payment is the most common means of online payment, not many of us understand just how it works. Hopefully by the end of this article, you will have fully understood what the process is.
Firstly, let us look at how the traditional means of credit card transaction works. The retailer or merchant swipes your card into the credit card terminal: This effectively ensures that your credit details and payment amounts are received by the merchant's acquiring bank, which then sends a confirmation to your bank details. If the amount to be withdrawn is sufficient, then the desired amount is deposited almost immediately into the account of the merchant. Online transactions work pretty much in the same way, only that a payment gateway is facilitated.
The merchant first and foremost has two have two things: a merchant account and a payment gateway account. These will ensure that the transaction is complete and the both of you get what you want out of the transaction. The process is simple and easy-to-use;
1. The customer identifies the product or service desired on the website by placing an order and typing in his or her credit card number. This is all done on a secure site of the online store. The details of the order and billing information are then retrieved and sent to the payment gateway for processing.
2. The payment gateway on the site then collects the vital information and sends it to the bank that is acquiring the transaction for the merchant. The merchant's acquiring bank then forwards this information to the bank of the consumer for a transaction verification of which the credit card bank sends a response code which may either be to deny the transaction, to approve it and also to supply a reason if the transaction was denied.
3. The merchant's bank then in turn sends the credit card transaction details to the payment gateway and if it is approved, the funds will be deposited into the merchant's account at the scheduled time of transaction.
4. The payment gateway finalizes this process by sending transaction details and information to the merchant's online store after which the information is displayed on the screen for the customer to see that either the 'credit card was charged' or the 'credit card was denied'.
It is also important to note that at given stages of the process fees were charged from the total of the transaction depending on various factors that include the payment gateway of the merchant and the financial institutions involved in making the transaction possible. It is usually a very small percentage of the total transaction fee involved.
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