Navigating the world of online payments via credit and debit cards is something many of us encounter regularly. It’s like having two roads to choose from when making a digital purchase. Debit cards act like a direct bridge to your bank account: when you make a transaction, the money is pulled directly from your account. In contrast, credit cards are similar to a financial realm of their own. When you opt for a credit card transaction, it doesn’t siphon money from your bank account. Instead, dips into a pool of available credit – funds you essentially borrow from the card issuer, and you’ll settle the bill later.
You’re aware that the funds will come from either your bank account if you opt for debit or from a credit pool if you choose credit. However, while you grasp this basic concept, the inner workings of these transactions, can be a bit confusing. Now, as you journey through this article, we’re about to embark on an exploration of the subtle intricacies surrounding debit and credit card processing.
The Fundamentals of Payment Processing
Let’s begin our exploration of regular or high risk payment processing by delving into the fundamental principles that underpin both credit and debit card transactions. Although there are differences in how these cards operate, the core elements of payment processing share common ground.
Understanding these fundamental concepts will not only help clarify the differences between debit and credit card processing but also empower you to navigate the intricate world of online payments with confidence.
Exploring the Inner Workings of Credit and Debit Card Online Payment Processing
When it comes to high risk payment processing through credit and debit cards, the mechanics are quite similar, revolving around the use of signatures. The key distinction lies in the source of funds associated with each card type. Whether you’re swiping a credit card or a debit card, the journey through payment processing consists of three essential phases discussed below:
Authorization, the initial step in both credit and debit card processing, involves six sub-steps:
Transaction Initiation
It all begins when the cardholder decides to make a purchase. Card information is either manually entered online at the checkout through an open banking payment gateway or is collected using a card reader. This reader can be swiped, have its chip inserted, or, in modern times, simply tapped for contactless payments.
Merchant’s Payment Request
The merchant, the business where you’re making the purchase, forwards a payment authorization request to their chosen payment processor.
Payment Processor Communication
The payment processor then reaches out to the relevant card association, which could be Visa, American Express or Mastercard to request payment authorization from the issuing bank.
Verification Process
The card-issuing bank conducts a thorough check, verifying information such as the security code, billing address and the card’s expiration date.
Transaction Decision
Based on the verification, the issuing bank makes a critical decision: to either approve or decline the transaction.
Transaction Status Notification
Finally, the bank communicates the outcome of the transaction back through the card association and the merchant bank, which then relays this information to the merchant.
This intricate process forms the backbone of the seamless experience you encounter when making purchases with your credit or debit card, offering a secure and efficient means of conducting transactions in the digital age.
While the payment processing journey outlined here may appear complex, it unfolds swiftly, typically in near real-time when you’re at the point of sale. The behind-the-scenes complexity is designed to ensure the security and efficiency of your transactions. In the case of eCommerce transactions, the process follows a similar path. Debit or credit card details are entered into a virtual terminal, which is essentially a web-based application dedicated to processing electronic payments. Despite the shift to the digital realm, the fundamental transaction processing steps remain consistent, maintaining the integrity of the payment process.
Processing Fees for Credit Cards and Debit Cards
When it comes to processing fees for merchants, it’s essential to recognize that these fees can vary significantly based on multiple factors, ranging from the type of card to the issuing bank and payment method. Debit cards tend to carry lower interchange fees compared to credit cards, primarily due to the perceived lower risk associated with debit transactions. Moreover, the card issuer and card type further add to the complexity of interchange rates.
It’s worth noting that interchange and assessment fees are beyond the control of merchants. Customers have the power to choose whether they want to pay with credit or debit, and they might even have various payment methods at their disposal. Merchants must navigate these varying fee structures, adapting to the preferences of their customers and the cards they choose to use.
In this often complex landscape of payment processing, one crucial takeaway is the importance of selecting the right payment processor like Pay.cc. With a multitude of options available, conducting diligent research is essential. This ensures that your chosen partner is not imposing excessive fees on your business, and that the service is tailored to meet your business’s unique needs, both in the present and as your business scales and grows.
