To understand the credit cards processing better we need to comprehend the payment processor first.
A Payment Processor is generally a third-party company assigned by a merchant or a vendor to handle the transactions from assorted channels like credit cards and debit cards for the acquirers by banks.
They are categorized into two different sections: front –end and back –end.
Front-end processors build the connection with various card associations and offer authorization and transaction settlement services to the merchant banks. While the back –end processors approve the settlements from the front –end processor and transfers the money from the issuing bank to merchant bank.
Generally, the entire process takes just a few seconds of time. The payment processor checks the details received sending them to the respective card’s issuing banks or card association for verification. During this process, it also carries out anti-fraud measures against the transactions. The process also includes other details like the country of card’s issue and payment history of the card, to measure the possibility of the transaction approved. When the payment processor receives the confirmation after verifying the card’s details, the valid information is transmitted back through the payment gateway to the merchant who completes the payment transaction. In case, the card association denies the verification, the payment processor relays the information to the merchant who declines the transaction.
Credit Card Processing
The credit card processing seems a very simple method to the buyer when he/she swipes or uses his/her credit card to the merchant. However, there are five key parties involved in the process of the electronic card transaction you make:
1. The buyer who owns the card
2. The merchant who sells goods against your money
3. The acquirer (an acquirer is a financial institution which processes credit or debit card payments on behalf of a merchant)
4. The card issuer
5. The association or the network that works as a clearinghouse and supporter for the acquirer and issuer.
Validation
An authorization process plays a vital role in the secure and authentic Credit Card Processing system. It is the authorization process which validates and confirms that the buyer has more than sufficient funds or credit limit to complete the transaction.
There are many folds of an authorization process:
1. The buyer provides the card details to the merchant by swiping card or putting card details in an online transaction or in an IVR transaction over the phone.
2. The payment process from the merchant electronically sends the card number, transaction amount and merchant identity to the acquirer.
3. The acquirer sends the request to the customer’s issuing bank to authorize the transaction by sending the acquired information.
4. The issuing bank checks the credit limit and red flag to avoid any fraudulent.
5. The acquirer authorizes the transaction informing the merchant about sufficient funds in customer credit.
6. The merchant provides the requested products to customer then after.
Thus the payment processor has a pivotal role in making the credit card processing system safe, secure and successful.