Imagine you are at home, with your online shopping cart full and ready to pay with your Credit Card . Did you know that a ballet of technology and security begins once you click 'confirm'? It is invisible to you but crucial for ensuring your transaction is smooth and secure. This unseen exercise is known as Credit Card processing.
What is Credit Card transaction processing?
Credit Card transaction processing refers to the series of steps that take place from the moment you use your Credit Card to make a purchase until the payment is authorised and completed.
It involves communication between the merchant, payment gateway, issuing bank and the card network (such as Visa or Mastercard). The transaction goes through various stages like authorisation, clearing and settlement. This entire process ensures that payments are secure and efficient, allowing seamless purchases with your Credit Card.
Parties involved in Credit Card processing
Credit Card payment processing involves several key players, each with a specific role that ensures the transaction is smooth and secure:
1. Cardholder: This is you, the customer. Imagine you are at an electronics store to buy a smartphone. You made your choice and are ready to pay with your Credit Card.
2. Credit Card network: It facilitates the transaction. Here, your Credit Card — powered by networks like Visa or MasterCard — contains all the necessary information to process the payment.
3. Credit Card processor: It is the vital link that ensures smooth transactions between merchants, banks, and cardholders. It is the engine behind every swipe of your Credit Card that ensures payments are processed securely and efficiently.
4. Issuing bank (card holder’s bank): A bank or financial institution that issues credit cards to customers.
5. Acquiring bank (merchant’s bank): A bank or financial institution that accepts credit card transactions.
6. Merchant: This is the service provider. Here the electronics store is the merchant that accepts your Credit Card for payment in exchange for the smartphone you chose.
7. Point-of-sale system: Often abbreviated as PoS, this is the technology used by the merchant to manage and process your payment. At the electronics store, the cashier will use a PoS terminal to input the amount. You will then swipe your Credit Card. The PoS system communicates with the Credit Card processor to complete the transaction.
How does Credit Card processing work?
Here's a condensed explanation of the Credit Card processing cycle:
1. Point of purchase: Let say you select a laptop on an online retailer’s app and enter your Credit Card details, initiating the transaction.
2. Payment gateway: Your Credit Card details are encrypted and securely passed through a payment gateway, acting as a bridge to the Credit Card processor.
3. Credit Card processor: The processor verifies your details with Visa, which in turn requests approval from your card issuing bank.
4. Issuing bank approval: The bank approves the transaction after confirming validity of the card and ensures sufficient funds are available.
5. Fund transfer: The approval is communicated back to the online retailer via the processor. The actual funds transfer is batch-processed at the end of the business day, with the money moving from the bank to the online retailer’s account.
How secure is Credit Card processing?
In India, the security of Credit Card processing is taken very seriously. Encryption and tokenisation are the front runners in safeguarding customer data. Encryption ensures that your card details are converted into a secure code during transactions, making it unreadable to hackers. Tokenisation replaces your actual card details with a unique token for each transaction, minimising the risk of fraud.
Credit Card processing fees
Credit Card processing fees vary based on several factors, including the type of Credit Card used, the merchant's agreement with the bank or Credit Card processor, and the transaction volume. Generally, Credit Card processing rates have three components:
1. Interchange fee: This is a fee charged by the card issuing bank and can range from 1% to 3% of the transaction value. Visa and MasterCard, for example, have their own interchange rates, which can vary by type of card and by the type of transaction.
2. Payment gateway fee: For online merchants, this fee is charged for using the digital infrastructure that securely transmits data. This can be a flat fee per transaction or a small percentage of the transaction amount, sometimes combined with a monthly service charge.
3. Processor's markup: This is the fee charged by the Credit Card processor on top of interchange and payment gateway fees. This can be a percentage of the transaction amount and include a per-transaction fee.
Components of Credit Card transaction processing
1. Cardholder: The individual who owns an Axis Bank Credit Card and initiates the transaction by making a purchase.
2. Merchant: The business or service provider where the purchase is made. They accept the card as a payment method.
3. Payment gateway: This digital service securely transmits the transaction details from the merchant to the acquiring bank.
4. Acquiring bank: The merchant’s bank forwards the transaction details to the card network for authorisation.
5. Card network: Companies like Visa, Mastercard or RuPay communicate with the issuing bank (Axis Bank, in this case) to verify and process the payment.
6. Issuing bank: The bank that issued the Credit Card (Axis Bank, in this case) to the cardholder. It approves or declines the transaction based on available credit or other factors.
Also Read: Demystifying Credit Cards: How do Credit Cards work in India
Conclusion
Understanding how a Credit Card processing works in India is key, especially as we all enjoy quick and secure payments. Knowing that your transactions are safe and cost-effective is a big plus.
With Axis Bank Credit Cards, you get more than just a way to pay. It is like unlocking a treasure chest of perks that make life a bit more fun. You will find yourself saving money with cool discounts, getting money back on what you spend, and even chilling out in airport lounges for free!
FAQs
How long does it take for a payment to be processed on a Credit Card?
Credit Card payments are typically processed within 24 to 48 hours. However, some transactions can be instant, depending on the payment gateway and bank. Settlement in the merchant's account may take additional 1 to 3 business days.
What is the order of Credit Card processing?
The order of Credit Card processing involves several steps:
- Authorisation (approval of funds)
- Authentication (verification of the cardholder)
- Clearing (finalising the transaction)
- Settlement (transferring funds to the merchant's account)
Who pays for Credit Card processing?
The merchant typically pays Credit Card processing fees. These fees include charges from the payment gateway, acquiring bank and card network. Merchants often incorporate these costs into product pricing to cover the fees.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
