Credit or Debit card payment:

Usually we will do the payments through credit card and Debit Card. Some people may think, just we are giving the card to the shop owner or we are entering details on the e-commerce website then shop owner is getting the money. But how this payment is happening and what the background process for this payment is, let us discuss in detail.

But how this process is happening and this merchant will get money. Let us discuss in details here.

A payment starts with a customer who’s interested in buying a particular product or service from some type of retailer or merchant service..

For example:  I want to buy mobile phone on any website or from any mobile shop. For that I need to give my card to the shop owner or I need to enter the details on website. 

Here we may think that we provided the card to the merchant hence my account has been debited and credited the merchant account with respective amount. But this is not true. Let us discuss in detail who are involved to complete single transaction.

Four parties involved to complete the single payment transaction.

  • The merchant that’s selling the product Ex: Amazon or retail store.
  • The payment processor that organizes the transaction
  • Credit card brands like MasterCard and Visa
  • Card issuers such as banks, credit unions or another financial institution

Here is a step-by-step outline of how a card based transaction is processed:

  • The customer gives his or her card to the merchant to pay for a product or manually swipes the card themselves.
  • Once the card is swiped, the transaction request is sent to the merchant’s payment processor partner
  • The processor then sends the transaction request to the corresponding credit card brand
  • The credit card company sends the transaction to the card issuer
  • The issuer then approves or declines the transaction based on available funds

When it comes to online payments including payment wallet, UPI payments and the like, there are three major players involved- the merchant, the customer and the payment gateway, linking the two parties. Here we are going to elaborate on the role of each that makes payment system work:

Merchant

In order to accept credit and debit card payments from online customers, the business owner needs to partner with some key players. He/she should have a merchant bank (also called an acquirer) that accepts payments on their behalf and deposits them into a merchant account they provide.

Customer

Similarly, the customer too needs a credit or debit card to make the payment for the products and services purchased. The bank that approves his/her for the card (and lends the cash to pay ) is called the issuing bank.

Technology

Connecting the two parties is the payment gateway that enables you and your customers to transact. First is the payment gateway, the software that links the site’s shopping cart to the processing network. The second is the payment processor (or merchant service), which does all the major tasks like moving the transaction through the processing network, sending you a billing statement, working with your bank, etc. Often, it’s your merchant bank that also acts as your payment processor, helping to simplify things and facilitating instant payments.