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When a Credit Card is Used — How Your Data Moves

The Credit Card Transaction Process Is 5 Seconds Of Pure Magic

Posted Jan 5, 2018
When a credit card transaction occurs, the data flows through many check points.

This week, we’re going ‘inside the transaction’ and break down what really happens during those precious seconds from swipe to receipt during every credit card transaction.

Your customer comes into your place of business, selects what they want to buy, and presents you with a card to pay. What happens in the next 5 seconds is nothing short of pure magic. We will look at each step and how all the guests from our party play a part. If you missed the “guest list” and who’s involved in this process, it’s right here.

First and foremost, you the merchant, work with an ISO (like Simpay for example) to give you the ability to begin and complete a transaction. They get you set-up with your Point-of-Sale (POS) equipment — hardware and software — and get you on the train to payment town!

Your ISO also puts in place the network and the acquiring bank, so that whatever card your customer presents (VISA, MC, etc.) can access the card transaction pipeline.

When a customer is ready to pay, they either swipe or insert their card for your terminal to read. The data it reads from the card is first sent via a payment processing network to the acquiring bank.

That data passes from the acquiring bank to the issuing bank. The issuing bank is the one that gave the customer the credit card in the first place, like PNC or a local credit union. Its name is usually on the card itself.

Part of their role is to say, “Approve, there is enough credit/balance to approve this transaction at this time.” Or even, “there is not enough credit/balance available, do not complete the sale.” They send an approval or decline code through the network back to the acquiring bank, which relays that info to your terminal.

Assuming the transaction is approved, you then print out a receipt and we’re done! And all this happens within mere seconds. Pretty cool, eh?

Let’s learn some fun facts about each of these players…

The issuing bank holds the debt obligation. They get paid for taking on this risk and securing the transaction. That’s why, when you pay your own VISA bill monthly, you write the check to the issuing bank, not to VISA itself.

The acquiring bank is responsible for posting these funds to your account once the transaction has cleared. In most cases, this happens within 24 hours. Funds are moved between banks across the country, nightly. Occasionally, it can take 48 to 72 hours. Your ISO can explain why this may apply to your situation.

One of the guests at our party has yet to be seen in this process though. Remember the associations (VISA, MC, etc.)? They don’t participate in the process itself. Rather, they define what the process needs to be, the qualifications that the other guests must meet to be part of this process, and they promote the use of the process.

We need them because they encourage customers to use credit/debit cards, and that drives our sales. Think of what would happen if we all had to have enough cash on hand to make purchases? How many lawn mowers or sofas or refrigerators would never be bought?

And by providing strict requirements and performance standards of all the entities that are part of the transaction process, the associations give all of us peace-of-mind that professionals are managing our money and our credit.

And another important role that Simpay and other ISOs play is to assist merchants with any day-to-day questions, both on the technical and financial side. If you had to deal with a network directly, think of all the players you’d have to learn about and interact with. You could spend days, even weeks trying to get help.

As your onsite access provider, your “concierge” so to speak, ISOs set everything up and figure everything out so you can conduct business. And if something isn’t right, you call your ISO and they work with you to solve the problem. Questions about statements, transactions, funds, etc.? They are your advocates and are there to help with this complex part of your business.

To learn more about how Simpay might be able to help you worry less about payment processing so you can focus more on business development, visit our solutions page.

Now that you understand the magic of the transaction process, it’s time to look into FEES!  

In our next post, we breakdown and explain who gets paid, why they get paid, what affects the rate you receive, and even how you might be able to lower some of your existing fees. Check out part 3 in our Credit Card Processing Explained series.