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What is credit card processing and why businesses need it?

The credit card process only takes seconds to complete but the process behind it is a complex one. It has many internal steps and procedures. Are you a person who is yet to get a merchant account? Or are you a person who is confused about how credit card process works? Don’t know why your banker charges you for credit purchase? Well, hang in tight because you are about to find out why.

Credit Card:

Credit cards are a plastic card that allows you to borrow money from the bank almost instantly. But one must keep in mind that one can only borrow money up to their credit limit. Credit will be declined if it crosses that limit. The money that is borrowed can be used to buy a wide range of articles that are up to the card-owners choice, but the borrowed money must be paid back within a fixed period, commonly called as the grace period. If the money isn’t paid back the bank may charge interest on the amount that was borrowed. The credit card is usually issued after the bank credit-rates the individual and this makes sure that the card-owner doesn’t spend beyond his means. There is a period of time that is given to the card-owner to pay back his amount due, it is called a grace period, it is usually at the span of 25-30 days after the transaction has been made. Usually, the bank mails the card-owner the money that he owes to he/she back and there is a time limit to which the owner has to pay the credit, by depositing the amount into his bank account.

Credit Card Processing:

Now, let’s go into the process of the credit card,

When one has a credit card he/she can get a loan to buy an article within a matter of seconds, with a swipe of a card. When a customer uses the card to buy goods on credit, the same gets approved by the bank within minutes. If he hasn’t reached his credit limit the transaction gets approved, But if he has the same gets rejected.

There are actually four people involved in this process, the customer, merchant, issuing bank and the acquiring bank. The customer with a swipe of a card gets credit from the issuing bank, the issuing bank then sends the money to reimburse them for the purchase that was made, the merchant then sends at the end of the day a list of payments called as a Batch for which money has to be deposited in his bank account (merchant bank account). Then issuing banks issues a bill to the cardholder at the end of the month. Fees are deducted from both banks to the customer and merchant bank and at the end, the amount of money that ends up in the merchant bank is less than what he charged the customer. The rate charged by the customer’s bank is the interchange fee and the rate charged by the merchant bank is the discount rate. In a way having credit processing will increase the chance of a purchase being made.

Reasons why business needs it:

From very large corporations to very small business must use credit card services, as they have a lot of advantages. That is listed as follows,

Advertisement:

Anything that attracts potential customers to come and buy goods or avail services from a point of business is an advertisement. In a way when one can buy through credit card, he/she will always choose it overpaying hard cash, as they can buy now and pay later. Hence this is proven way to attract men and women into investing in your business.

Easy to set up:

They are easy to set-up as well, one has to get a merchant account and buy the equipment through which the card is swiped and it’s done. When one learns the process of credit-card transaction they also have widened their horizon to a new set of financial jargons that aid them future course.

Sales rate:

An American study showed that if a small business doesn’t accept bill payment by means of credit-card they may lose the sales up to 3000 dollars in a year. Hence it is important mainly for growing business to invest in credit card processing.

Better management of money:

Since all your transactions are done digitally, no one has to physically count the cash and the possibility of theft is also reduced effectively.

Technology Points
Technology Points
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