Paying an item using your credit card is not a magical process. Many things immediately take place after you swipe your card that happens almost in an instant. Paying bills through your CC account may look simple, but there is more to credit card processing than you might think.
A credit card generally refers to an electronic plastic given to users as a mode of payment. It is like a payment device embedded with magnetic strip that follows a very complex banking process. It is so small and portable that most standard size can fit any type of wallet. In addition, different credit cards also have different limits which are usually based on the financial ability of the holder.
From a customers point of view, using their CC account to pay for goods and services seems really simple and straightforward. The truth is, however, it is actually a far more complex process as it involves banks, servers, information encryption, and data transmission. To give you an idea how these electronic plastics work, the procedures are discussed below:
The process initially starts after your CC is swiped through a wiring terminal. A transaction can also be manually prompted into the system using the unique account number of the plastic device that can either be entered by the holder or merchant. After everything gets through the terminal, the transaction is immediately forwarded into the server and an authorization request is generated.
An authorization request generally refers to an electronic request handled by the processing network to secure funds from the account holder. After the network receives the fund request, it then links up the transaction with the issuing bank or provider. The information forwarded will be subject for verification by the bank or issuing company before it finally sends an authorization approving the request.
If the account has already reached its limit, the issuance of funds will be denied. Furthermore, issuing banks also put a hold for the requested amount during the verification process. As a result, it reduces the available balance of the holder for future purchases. Once the authorization from the issuing bank is confirmed, the processing network then immediately sends a response to the merchant.
This generally completes the whole process. After releasing the item, the merchant can now choose whether to request an immediate fund transfer or save the wiring for later to save on fees. If the merchant chooses to do the latter, then the net settle amount, minus the processing fees, is then wired into the bank account of the merchant at the end of the day.
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