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Credit Card Processing: How the System Works

Establishing a merchant account for your business enterprise is the wisest financial decision you will ever make for the growth, expansion and success of your business. Once you've set up a merchant account, you can accept credit and debit cards payments from your clients for your products and / or services. You can also arrange to accept online and mobile banking payments for your products and / or services.
A merchant account opens up new avenues for your business; therefore, giving your business many more opportunities to flourish. But, have you ever understood how the credit card processing system works? Have you tried to perceive the complexities of the players involved in the process and the intricacies of the system?
 
While it is not entirely essential for you to know the inside and outside of the card processing system because your Merchant Service Provider will do the needful for you; it is good for you to acquaint yourself with the system on a general basis.
 
The Participants Involved in a Card Transaction
 
A typical credit or debit card transaction involves the following players:
  • The customer
  • The merchant
  • The payment gateway
  • The customer's credit card issuer
  • The credit card interchange
  • The processor at the acquiring bank
  • The merchant's acquiring bank
The Route the Money Takes from the Customer to the Merchant
 
Let's take an example to understand how the card processing system works.
 
Suppose that a customer walks into a clothing store and she finds a bag that catches her eye. She immediately proceeds to the payment counter and makes a payment of $100 towards her purchase with her cards.
 
The cashier at the merchant's store accepts the cards and uses a card swiping machine to set the process into motion.
  • The $100 amount makes its first stop at the payment gateway where the payment is first authorized with a minor deduction in the amount.
  • Now, $99 travels to the appropriate processor and after a minor deduction is submitted to the card interchange as $98.5.
  • Once the transaction gets a clear at the interchange, it moves on to the issuing bank with a further deduction where the issuing bank verifies the availability of funds in the customer's credit / debit card.
  • If the transaction is declined, it makes its journey back to the customer from here.
  • If the transaction is approved, $98 reaches the processor at the acquiring bank, just one step closer to the merchant account.
  • Once authorized, $97.5 gets deposited into the merchant's account, which is now at the merchant's disposal.
(The figures and fees involved in card processing are based on the number of players in the process, merchant type, card type and risk factors)
 
In the present age, quite a number of payments are made electronically, especially with the extensive use of credit and debit cards and online funds transfer. Although typical card processing takes seven participants, the entire transaction amazing takes a maximum of five seconds for approval.
 
Plastic money has certainly established a place for itself in the industry, and establishing a merchant account to avail of its benefits is beneficial to the growth of your business.
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Financial Intelligence Unit

The enactment of the Proceeds of Crime Act 6 of 2012, the Financial Intelligence Unit Act 14 of 2012 and the Terrorism Act 16 of 2012, represent a comprehensive legislative regime highlighting the Grenada Government’s commitment to rid our financial system from the scourge of money laundering and terrorist financing and the attendant problems.

Tafawa Pierre

Head of FIU

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