|
What Makes a Credit Card "Click": A Merchant's Guide to Basic Credit Card Processing
Credit cards. Debit cards. Company and stored-value cards. Smart cards. Electronic checks and electronic bill payment services. These are the systems already available to the consumer market! Thanks to companies like First Data and our many bank and technology partners, customers now enjoy more options in paying for goods and services than ever before. And the choices keep on growing. In order for you to better understand how money travels from the point of sale into a merchant bank account, we've prepared a glossary and basic overview of the process.
 Clearly, there are variations in the way each payment method functions, but certain fundamentals apply. Every credit card transaction starts with a customer and ends with an exchange of money, services orgoods. Converting that credit card number into a payment in a merchant's bank account involves several "invisible" electronic steps. If you're not already familiar with the payment processing industry, you'll be surprised at how integral the First Data Merchant Services (FDMS) services are and at how many steps are involved.
First, the terms you'll need to know...
|
Acquirer
The "acquirer" is a
Visa® and/or MasterCard®
member or is sponsored
by such a member;
acquirers solicit, screen
and accept merchants into
their program. It:
|
- Accepts and processes merchant sales drafts
|
- Provides a merchant with point-of-sale terminals, instructions and support services
|
- Charges the merchant a fee for handling each transaction (reflected in a "discount" from the face amount of the transaction)
|
|
|
|
|
Associations*
Visa and MasterCard
are worldwide payment
services associations made up of member financial institutions. They:
|
- Set and enforce rules governing their transaction cards
|
- Maintain national and international networks through which data funds are moved between cardholders, merchants, acquirers, and issuers (known as "interchange")
|
- Conduct clearing and settlement processing
|
|
|
|
|
*Note: Associations neither issue cards nor sign merchants. Instead, they license member financial institutions to "issue" cards and/or "acquire" merchants' sales drafts under the association's brand name.
|
|
|
|
The Associations then manage the transfer of transaction data and funds between "issuing" and "acquiring" members, creating an infrastructure that is called an "interchange" system.
|
|
|
|
Cardholder
A financial institution
(issuer) offers an
application to a
potential cardholder.
The applicant
is screened for
creditworthiness,
and if the application
is approved, the
applicant becomes
a cardholder".
|
|
|
|
|
|
|
|
Issuer
The "issuer" is the cardholder's financial institution. It must:
|
- Be a licensed Visa® and/or MasterCard® member
|
- Issue the card to the approved cardholder
|
- Receive and pay for transactions from Visa and/or MasterCard transactions
|
- Send bills to and collect payment from the cardholder
|
|
|
|
|
Merchant
The "merchant" is any person or entity that sells a product or service. In order to accept bankcards, a merchant must meet various qualifications of Visa and/or MasterCard and the merchant's acquirer. Generally, such a
merchant must:
|
|
- Sign a written agreement with an acquirer to accept cards as payment
|
- Maintain certain standards with respect to transactions submitted through interchange
|
|
|
|
|
Payment Processor
The processing of credit and debit cards, or more accurately, "payment processing", involves several main parties. These are:
|
|
|
|
|
|
- An acquirer (and a clearing bank, if the acquirer isn't also serving as such)
|
- A third-party "processor" such as First Data Merchant Services (FDMS) that works together with the acquirer, providing merchant processing services and back-office operations.
|
|
|
First Data is the leader in the payment processing industry, investing substantial resources and finances in technology such as internal/external system's infrastructures, telecommunications, customer service tools, marketing, research and development of products and services. Client banks depend on the FDMS® technology and economies of scale to build, retain and grow their merchant bases. FDMS handles processing for the issuer, the acquirer and the merchant, providing each with state of the art services and products.
|
|
|
|
 So now you know the fundamentals.
|
|
|
