The Speed of Today's Credit Card Processing is Amazing

If you though the super-sonic transport jet that used to get people to Paris in the time it takes for a power lunch, then you’ll appreciate the speed at which merchant services are handled these days. Though credit card use continues to increase around the world, few cardholders have a clue about what happens when their card is used at their favorite department store, or when they shop online. The short answer is that quite a bit of activity is going on in a very short amount of time.

Indeed, the speed at which the process happens makes it hard to comprehend how many steps are in place and covered to make sure all parties are protected while business is getting done. When you offer up your card as payment in a store, it is swiped through a terminal that reads the magnetic strip on the back side of the card. The terminal will then connect the acquiring processor to get authentication – is it showing up as legitimate?

Assuming all is good to this juncture the processor then kicks the transaction to the card association, which forwards the information for the authorization from the bank that issued the card. It is here that bank accepts or declines the transaction, whipping a response back to the card association. Assuming there is acceptance, the association contacts the credit card processor with the authorization and a request to deliver goods and/or services is sent to the merchant via a POS terminal. This is the point at which the green light is lit so you can get your purchase.

The merchant then sends the card processing company what is called a fulfillment notification to permit settlement - which means the goods/services are actually handed over. Then the credit card authorization information is sent to the issuing bank and the customer’s card is charged. The whole process - with all the authorizations, verifications, involved parties and security measures, etc., takes less than 15 seconds.

At the end of the day the merchant settles their batch - which the store owner’s version of happy hour - the time when the acquiring processor finalizes transactions with the issuing bank(s), and funds are transferred to the merchant’s bank account.

When the transaction is over the Internet, there are minor differences. After the consumer picks out what they want and collect it into a virtual shopping cart they click over to the checkout page, where they enter their shipping and billing information. Their card information (number and expiration date) are entered on to a secure form transmitted over the Web using real-time processing software, which then encrypts the transaction to the acquiring processor for authorization.

The acquiring processor will then pass the transaction to the card association, which requests final acceptance from the issuing bank. The bank accepts or declines the transaction and notifies the card association. The association contacts the card processor with the authorization and the request to deliver goods/services is sent to the merchant.

As before, the merchant sends the card processing company the fulfillment-to-permit- settlement notice –the goods are ready for shipping. The capture takes place as authorization is given to the issuing bank and the customer’s card is charged. And as before the merchant settles their batches at the end of the day and the funds are deposited into the merchant’s bank account.

Again, what surprises most people is not the amount of steps that it takes to process a credit card as payment but the speed at which the transaction takes place.

Jim Osterman is a Web content developer with Charge.com, a credit card processing services provider with innovative merchant account solutions.