Five Things You Didn’t Learn in School About Credit Cards

How much do you really know about that little piece of plastic you pull out to pay for everything from candy bars to cars? Where does your card data go, who has access to it, and how does the whole thing even work? Let’s take a look at the process from start to finish.

1. Name That Brand

Take out your favorite credit card and look at it for a minute. You’ll see the logo for one of the big credit card associations splashed on the front. In the United States, you’ll see names you recognize like VisaMastercardDiscover, and American Express. The card association is the company that licensed your credit card and assists with transaction processing.

2. I Swipe, You Swipe

Now that we’ve got that settled, let’s pretend you’re making a transaction at the hardware store. You pull out your trusty piece of plastic and swipe or insert it (for EMV-enabled devices) into the point of sale terminal in front of you to pay for your tools. This starts the transaction process by sending your card data through a payment gateway like CardConnectPaysafe, or our very own Velox solution. Don’t let the fancy term fool you – a gateway is just a software program that allows transaction information to flow from the merchant to the next link in the chain, the processor. The software looks for fraud, analyzes the data, and passes it on.

3. Introducing…the Processor!

Next up is the credit card processor, and that’s where we come in. There are many different processors out there, and your hardware store has selected one to work with. With names like VantivElavonTSYS, and First Data, you may never have heard of these companies, but they are critical to the payment process as they are the primary entities responsible for making sure the transaction data gets communicated to the store’s bank (call the acquiring bank). We work with many different processors at 360 Payments, providing you a higher level of service, security, and flexibility by letting you shop around. It’s a pretty sweet deal for you!

4. And We’re Back

Once the processor has received the transaction request and has communicated with the acquiring bank, the data goes to the credit card association (remember, that’s the Visas and Mastercards of the world). They in turn pass the request on to your bank (called the issuing bank) which checks again for fraud, verifies there are funds available to cover the purchase, and ultimately approves the transaction. This is done by issuing an authorization that races back through the card association to the hardware store so you can sign on the dotted line and leave with your tools.

5. The Waiting Game

You may notice that purchases you’ve made don’t yank money out of your account right away when you use a credit card, but they do when you use a debit card or cash a check. This is because credit card transactions stay in a pending state for up to several days, even though the authorization was granted. The funds are earmarked for that particular transaction and merchant, but the bank is waiting for the merchant to issue a capture (or request for settlement) before they release the funds.

There is usually a time limit by which a merchant must issue this request or the funds are released back to your account. You’ve seen this in action when you pay a deposit for, say, daily ski equipment rental. If you were to steal the equipment and take it home with you, you’d be charged your deposit (and probably then some). However, if you bring it back at the end of the day, the resort will not make the request for settlement and the charges will fall off. You’ve seen this work in reverse as well when you eat at a restaurant and leave a tip on your card. The authorization is granted for the pre-tip total, but when the request for settlement comes through it will include the tip amount you wrote on the receipt. A silver lining of this two-step process: if for whatever reason you’re overcharged by a business, there’s extra time to correct the issue before the final capture. A merchant can simply void an authorization and avoid needing to issue a refund.

Making the Hard Stuff Simple

If this all seems clear as mud, don’t despair! We eat, sleep, and breathe this stuff, and we’re on your side. Our mission is to provide simple, effective payment solutions that take the guesswork out so you can spend time on more important things. We focus on proactive education instead of reactive problem solving (although we’re pretty good at that too when the need arises) so you’re armed with the knowledge you need to make smart decisions. Give us a call at 1-855-360-0360 or drop us a line on our website – we can’t wait to help you get started!

PS – Confused about fees? We break that down in this blog.

PPS – Concerned about fraud? We can help you mitigate those risks, too. Check it out.

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