Transactions have become easier and convenient with the use of credit cards throughout the world. One does not require carrying huge cash, converted currency, or an internet connection to make online payments. Credit cards are a reliable form of payment that can be used online as well as offline. At loanbaba.com, you will understand how credit card works.
Though it seems to be magic, there are multiple players involved in the whole credit system. The credit card serves differently for different parties. Here is a complete guide for beginners for credit card, and loanbaba tells you all about it.
A person who wants to apply for credit cards requires first to check his/her eligibility in terms of finance. If he/she is eligible on their earnings, then the person can avail credit services at a certain set limit. On receiving the card, payments can be made on credit. Thus, the card holder gets a certain limit of money as a short loan. However, in a case of exceeding use of the limit, the person will have to pay the penalty.
At the terminating credit period, the lender expects the card holder to pay back the amount taken as credit. If not paid in full, the person will have to pay at least the minimum amount mentioned. The rest unpaid balance will be subject to interest. The interest shall keep on adding until the amount payable has been paid. You can compare best credit card options at our website.
Other than the card holders, there are numerous other parties involved in the entire credit system. These are:
Sellers or merchants – The sellers, give their customers an option of POS terminal to swipe the cards and make payments.
Payment gateways – This is the online version of POS at the retail stores. Payment gateways let the individuals make payments using their credit cards online.
Card issuers – The banks or financial institutions that offer credit cards to customers and collect their monthly bills are the card issuers.
The acquirer – These are the parties or banks that process the payments from the card on behalf of the retailers. Merchants get POS machines from the acquirers.
Association or network – It is a network that processes payments, collects information from the processors, collects and authorises the payments made for purchases. Major players in the market are MasterCard, Visa, American Express, etc.
Payment processors – These are the processors who collect data and forward it to the network. The right network is identified using the last 4 digits of the credit card.
When the cardholder makes payment via his credit card, the merchant makes the request to the acquirer using a phone or any network connection. The acquirer further takes the request to the card issuer to authorise the transaction. Card issuer checks if the individual has enough credit to make the payment. If yes, the person sends an authorization code to the acquirer. The acquirer further approves the transaction, and finally, the payment is processed.
It is not just 1 card swiped by the merchant in a day. Many customers pay via credit cards. Thus, in order to track the sales, merchants request the acquirer through the issuer to send all the payments. The acquirers then give payments to the issuers. These issuers keep a certain percentage of payment as a fee and transfer rest of the amount to their bank balance. It is very important to understand the charges of credit card.
The transaction rates vary from merchant to merchant. Every transaction is featured with its type, category, etc. the same process takes place in case of online payments. The only change here is the presence of payment gateways such as VeriSign, PayUMoney, etc.