In the Credit Card Processing Industry we have the participation of the following financial institutions and individuals:
- Issuing Banks – Financial institutions that in partnership with VISA, MasterCard and Discover and American Express* issue credit and debit cards for the use of their cardholders.
- Acquiring Banks – Also known as the merchant’s bank, Acquiring Banks do business with the merchants enabling them to accept debit and credit card payments. These banks provide merchants with bank accounts for them to get their daily deposits from credit and debit card sales. In other words, Acquiring Banks acquire sales slips from merchants and credit the equivalent amount of these sales slips into merchants’ bank accounts.
- Card Brands or Networks – Also known as financial service companies that facilitate electronic funds transfers around the world these companies oversee and facilitate monetary transactions between consumers and merchants or issuing banks and acquiring banks. The major card brands know worldwide are: VISA, MasterCard, Discover and American Express*. These companies do not set interest rates, issue cards or offer them to consumers, instead their main functions are:
- A. Manage their own networks and servers to ensure privacy, speed and safety to all credit and debit card transactions worldwide. Visa owns VISANet and MasterCard owns Banknet. Those are their own networks.
- B. Set their own rates also known as dues, assessments, and interchange rates.
- Processor or Acquirer – is an organization that is directly connected to Visa, MasterCard, Discover and American Express* networks. It is responsible to provide authorization, clearing and settlement services on behalf of Issuing Banks that are members of VISA USA, MasterCard International and/or Discover Network.
- Cardholder or Consumer – The person whom a bank or financial institution issues a credit or debit card to.
- Merchant – business, person or a corporation who enters into a merchant agreement with TekkPay, its Processor, and its sponsoring Bank to accept credit or debit cards from cardholders paying for the purchase of legitimate and lawful products and services.
From the Cardholders Hand to the Merchant’s Bank Account: Where Does the Money Go?
There four main steps in credit card processing and those steps are:
*American Express is mainly a one stop shop for all the entities mentioned above. They mainly set their own rates, process transactions, monitor their own network and settle payments. TekkPay through its processing partner can credit all your American Express transactions on the same deposit for your VISA, MasterCard, and Discover transactions, thus allowing you to access your money faster and conciliate your transactions with more accuracy and speed.
- The Authorization phase is the first step in the credit card transaction processing cycle. During this phase, the cardholder pays for a purchase made at a store using a credit card. The merchant then takes the card and swipes the card on his credit card machine. If the order is done via phone or online the information is usually key entered on a credit card machine or virtual terminal. The Processor also known as the Acquirer requests an authorization for that particular transaction. The Issuing Bank submits the authorization code for that transaction after confirming that funds are available in the cardholder’s account. The Acquirer then authorizes the transaction indicating on the sales slip and screen that the transaction has been approved. At that point, the merchant can safely hand the customer the products or services he or she just purchased at the merchant’s establishment.
- During phase two all the merchant’s credit and debit card sales are gathered in one single batch of transactions captured during a day of business at a merchant’s location. At the end of the day one of two things can happen:
- A. The merchant manually submits all his transactions to the processor. The act of sending those transactions is called “batch.” Batches can be performed by simply following the appropriate steps on a credit card terminal. Typically that happens when a merchant has to adjust each sales slip or ticket manually to add tips. Restaurants are a great example of retailers who adjust their sales tickets.
- B. The submission or batch of the credit and debit card transactions happen automatically. In this case, no adjustments are necessary and the time transactions are batched vary from merchant to merchant.
- The clearing phase is where the batch of transactions submitted by the merchant are sent to the specific network associated with a particular card. In this phase, the submission is the actual request for payment by the processor to cardholder’s issuing bank. Networks such as VISANet are responsible for distributing the payment requests to each issuing bank. Upon receiving the payment request from the card network, the issuing bank deducts its interchange fees and transfers the net amount to the card network which then transfers it back to the processor after deducting its dues and assessments fees for each transaction.
- On the last phase called Funding the processor or acquirer subtracts* its markup or fees per transaction and transfers the net amount to the merchant’s personal or business checking account via ACH Credit. At the end of the billing cycle, the cardholder gets a statement reflecting the transactions he made with his credit card.
*TIP: When using TekkPay’s platform to processes his transactions, a merchant has the option of choosing monthly or daily billing. In other words, merchants can have their credit card transactions sales deposited in full into their checking accounts daily (business days only) and pay all fees due at the end of the billing cycle. They also chose to pay interchange and other fees due for each transaction as payments are accepted through a credit card machine daily and processed by our company and partners.