Credit Card Industry Terms and Definitions

Credit Card Industry Terms and Definitions

Issuer

A financial institution or bank is also the issuer of the electronic funds cards (debit cards) which the consumer (cardholder) uses to purchase goods, services or obtain cash advances. The issuer is a registered member of Visa and MasterCard Associations. The issuer both receives and pays for transactions from the cardholder’s transaction activity with Visa and MasterCard.

Interchange

The Interchange System is the bank card/ credit card system managing the transfer of transaction data and funds between the issuing and acquiring members through a process called “Interchange”, which simply means the flow of money and information between the following parties: merchants, cardholders, card associations and acquirers.

Interchange fees are those that the financial institution charges for purchases made on the credit/debit card. Interchange consists of the following steps as a requirement in every payment transaction.1. Authorization

Authorization occurs as the cardholder gives payment for his purchase to the merchant. Later, the merchant submits the information of the transaction to the acquirer. The acquirer in return would verify the issuer and in an instant the transaction amount and card number are validated. Then, the acquirer processes the cardholder transactions.

2. Batching

Batching refers to the stored authorized payment transactions which are kept in batch. At the end of the day, the merchant themselves will send the information to the acquirer to receive payments.

3. Clearing and Settlement

The acquirer sends the transaction information through batch for the card associations. It debits the issuer for payment and gives credits to the acquirer. In addition, the issuer pays the transactions to the acquirer.

4. Funding

If the acquirer has been paid the result will be merchants will receive payment as well. Usually, merchants will receive equal amount of the transactions minus discount rate. This is the fee which merchants are paying the acquirer for their service in every payment transactions.

 

The Associations

Visa and MasterCard are the associations that manage both the bank card issuers and acquirers. These associations set and enforce the rules governing bank cards, maintaining the authorization and settlement systems, managing the clearing and settlement processes, supervising the processing and developing new products and programs.

Conclusion

We are quickly becoming a cashless society so although it is not a requirement for a business to accept the various forms of electronic payments, the more options you make available, the better your competitive advantage. Whatever the industry or business size, it is vital that you find a merchant service provider that can focus on your specific area, whether its ecommerce, retail, service, catalog, restaurant, telephone/mail order, wireless, or a home based business. It is equally important to choose a provider that also has the level of infrastructure needed to provide the best system for your needs, from software and terminal plug-in’s to repayment gateways and real time account access.