Credit Card Processing

Particpating parties:

• Merchant Bank: the bank where your account is located.
  
• Acquiring Bank: a bank that specializes in managing credit card transactions for merchants.
  
• Credit Card Network: the communications network that connects issuing and acquiring banks; built by MasterCard and Visa.
  
• Issuing Bank: the company that issues the credit card to the customer.

Verification & Authorization
You (Merchant)		Acquiring Bank (Credit Card Processor)	Credit Card Network	Issuing Bank
	Customer Information credit card number,
	name, billing address, etc.
(Completion of Sale)
	Approval Code		Notifies Approval	Security Check
Capturing (Settlement)
(At the end of each day, you send a batch of transactions)	Request to capture funds	Acquiring Bank	Forwards Request	Issuing Bank
You
Funds Transfer
Your Bank Account (Merchant Bank)	Transfer Funds	Acquiring Bank	Pay Funds	Issuing Bank

Steps involved in a normal credit card transaction:

1. Merchant calculates the amount of purchase and asks buyer for payment
   
   
2. Buyer presents merchant with a credit card.
   
   
3. Merchant runs credit card through the point of sale unit. The amount of the sale is either hand-entered or transmitted by the cash register.
   
   
4. Merchant transmits the credit card data and sales amount with a request for authorization of the sale to their acquiring bank. Point of sale units are usually set to request authorization at the time of sale, and then actually capture the sales draft at a later time.
   
   
5. The acquiring bank that processes the transaction, routes the authorization request to the card-issuing bank. The credit card number identifies type of card, issuing bank, and the cardholder's account.
   
   
6. If the cardholder has enough credit in their account to cover the sale, the issuing bank authorizes the transaction and generates an authorization code. This code is sent back to the acquiring bank. The issuing bank puts a hold on the cardholder's account for the amount of the sale. Now the sale is complete, but the transaction is not -- no money has changed hands yet.
   
   
7. The acquiring bank processing the transaction, and then sends the approval or denial code to the merchant's point of sale unit. Each point of sale device has a separate terminal ID for credit card processors to be able to route data back to that particular unit.
   
   
8. A sale draft, or slip, is printed out by the point of sale unit or cash register. The merchant asks the buyer to sign the sale draft, which obligates them to reimburse the card-issuing bank for the amount of the sale.
   
   
9. At a later time, probably that night when the store is closing up, the merchant reviews all the authorizations stored in the point of sale unit against the signed sales drafts. When all the credit card authorizations have been verified to match the actual sales drafts, the merchant will capture, or transmit, the data on each authorized credit card transaction to the acquiring bank for deposit. This is in lieu of depositing the actual signed paper drafts the with the bank.
   
   
10. The acquiring bank performs what is called an interchange for each sales draft, with the appropriate card-issuing bank. The card-issuing bank transfers the amount of the sales draft, minus an interchange fee to the acquiring bank
    
    
11. The acquiring bank then deposits the amount of the all the sales drafts submitted by the merchant, less a discount fee, into the merchant's bank account.

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