Mechanism behind online credit card payments

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Published: 24th March 2011
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In USA, according to estimates per capita credit card possession is 3.4. More than 23 billions of credit card transactions occur in a year in USA alone. In this direction, the UK, countries of EU and other developed countries are not lagging behind. Emerging economies like India and China are following the suit in a faster rate. The reason behind it is the flexibility and convenience of online credit card payments. It has changed the dynamics and dimension of consumer spending pattern and business operation significantly. Dependence over credit cards is increasing at an increasing rate. However, what is the reason behind all the above phenomenal changes? This is the flexibility and convenience of the payment mechanism. In this article, we will focus upon the online credit card payments that make it so popular.

Online credit card payment is complex process and comprises of several steps for successful processing. Credit card processing is completed through four major processes. They are authorization, batching, clearing and funding. Authorization is the first step of online credit card payments and processing. First of all, cardholder handovers (or gives required information) his/her card to the merchant for the purchased product or service requests for payment through card. Then the request is sent to the acquirer by the merchant. Acquirer is a bank that is authorized for processing and settling credit card transactions of a merchant. For this purpose, the Acquirer takes the help of the card issuer. An authorization is sent to the issuer by the acquirer after getting the request from the merchant. The Issuer verifies the validity of the code and resends it to the Acquirer. This process signifies that the cardholder has required money for the purchase. Then only, authorization is made by the acquirer. It is informed to the merchant and the cardholder gets the product or the service he/she has ordered for.

Batching is the second process associated with online credit card payments. In this process, the duty of the merchant is to store all authorized sales through credit cards in a batch. For receiving the payment of all the transactions, the merchant has to the batch to acquirer. From here, the third step or clearing the funds begins. The acquirer sends the batch received from the merchant through card network. Card networks are intermediaries among acquirer and the card issuer. Visa and MasterCard are the most popular card networks. Here, the aim of the acquirer is to get the payment from the credit card issuer. Once the issuer receives the batch, it subtracts interchange fee from the whole amount and the rest is sent to the acquirer.

Funding is the last step of online credit card payments. Here, the acquirer deducts the discount fee from the amount received from the card issuer. The rest amount is paid to the merchant. For the success of online card payments, all the above mechanisms need to work in a synchronous manner. Any irregularity at any step might create problem in the processing.

The author is an SEO copy writer and internet marketing specialist. To know more aboutonline credit card payments and credit card merchant visit

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