As per surveys, 57% of the preferred mode of payments for online purchases will become cash on delivery, 17% by debit cards, and 13% by credit cards within 2020. Mobile wallets are also catching up and tend to be the payment mode for 15% online transactions.
The seemingly lesser percentage of credit cards is primarily due to a similarly lower number of cardholders. However, credit cards provide certain benefits which no other financial tool does.
Credit card holders who know how to best use their cards, are able to make the most of such features & benefits provided by financial institutions. A large number of online and offline payments or transactions require credit cards other than mobile wallets.
However, it is important to understand that every single transaction through a credit card or even a debit card is an online process. Even if you are not making a transaction online, swiping your credit card starts an online credit card processing protocol which involves numerous organisations.
What follows is a brief guide on everything you need to about the process between you using your credit card and the completion of the transaction.
What is credit card processing?
Credit card processing acts as an online point of sale (POS) which enables you to pay for a product or service you purchase against your line of credit. A POS is a terminal that lets you pay for a purchase at physical stores by swiping your cards.
The processing involves two parties:
- Payment gateway
The payment gateway is a service that acts as an online point of sale. You are redirected to a payment gateway’s website when you choose a credit card to pay. Usually, you provide your card details on such a site.
Merchant account
Business owners providing credit card processing require a merchant account generally offered by the payment gateway provider.
There are various costs associated with a merchant account like:
- Initial fees – Fees required to open an account.
- Maintenance fees – Charges needed for the annual maintenance of an account.
- Transaction fees – Amount that a payment gateway charges for each transaction in the businesses website. It is generally a specific percentage of a transaction amount with a flat fee.
The fee might differ with the mode of payment and the credit card company. It might also be higher for international credit cards as compared to domestic ones.
- Payment processor
The payment processor is a financial institution that powers an online credit card processing. It transfers the funds from your account to the merchant’s account after approval of your credit.
How does credit card processing work?
Online credit card processing involves several steps, viz. –
- Cardholder
Here, the cardholder is you. You get redirected to a payment gateway after you select credit card as the mode of payment. Here, you enter your name, credit card number, expiry date, etc.
- Merchant
The next step involves a merchant or business owner. The merchant forwards your information and transaction details through the payment gateway to the acquiring financial institution.
- Acquiring financial company
The acquiring institution receives your information and transaction details. It then forwards the same via your card’s network to your credit card provider (issuing financial institution).
- Credit card network
This is the company that powers your credit card. You can find this network at the bottom right of your credit card.
Each such company has its own network to carry out a transaction between an acquiring and issuing financial institution.
- Issuing financial institution
Your financial company receives the transaction information and approves or declines the same. It will accept a purchase based on several factors; primarily, your available credit limit.
- Credit card network
Your financial institution sends an approval or denial message through your credit card network to the merchant’s acquiring financial company.
- Merchant
Finally, this message reaches the merchant which confirms your order. You may receive a notification for order failure if your financial institution denies the transaction.
All of these steps for online credit card processing happen within a few seconds. In the end, your credit is debited, and the merchant’s account is credited with the amount.
Credit cards can not only prove helpful for online transactions but also for several other purposes.
For example, you can now withdraw cash from ATMs without the need to pay interest. Credit cards like the Bajaj Finserv RBL Bank SuperCard enable you to perform such withdrawals without the need to pay any interest for up to 50 days. This credit card also offers an emergency personal loan against the available line of credit for an interest-free period of up to 90 days.
Bajaj Finserv also brings you pre-approved offers that save you time when availing a credit card by making the process straightforward. Pre-approved offers are also available on personal loans, home loans, business loans, and on a number of other financial products and services. Provide only your name and phone number to check your pre-approved offer.
There are various credit card payment offers available which make online shopping with these products exceptionally rewarding. Now that you understand how your credit card works, make the best of it with the offers provided by your credit card provider.
