When thinking of credit card processing, you need to focus on all the participants:
The Customer and the Merchant
The customer is the person who owns the credit card. A merchant is a person selling the goods. It could be a store, vendor, or an individual selling a product.
Point of Sale (POS)
POS is a debit or credit card reader (machine) or scanner that accepts a sale.
It is an eCommerce application service that approves a credit or debit card sale.
It is a third party that handles debit or credit card transactions from various channels.
Credit Card Network
It collects data from the payment processor and verifies the balance on the card.
A financial institution or bank that offers credit to consumers is a card issuer.
Here is how it works
- A customer or cardholder buys something from the merchant
- The seller swipes the card through a card reader (POS). For online shopping – payment gateway
- A payment processor picks up the notification from the POS and sends it to a network
- The credit card network contacts the card issuer to check the balance on the account
- The network receives an authorization code if the bank okays the sale
- The seller (merchant) receives the code from the network to verify the sale
- The merchant approves the transaction based on the code from the network
- Then the customer or cardholder receives the product
Image: Bigstockphoto.com / Olha Tsiplyar