Credit Card Processing

From LoveToKnow Creditcards

Credit card processing is often taken for granted, until you’re stuck in line at a register and the system is down. But credit card processing has come along in the past few years and glitches are now the exception rather than the norm.

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Understanding the Process

When paper and cardboard credit cards first became popular in the early decades of the 1900s, salespeople had to handwrite the customer’s account number on tracking sheets that were then used to access money for the retailer. Customers received a bill once a month which detailed their credit spending.

The switch to plastic in the 1950s allowed merchants to imprint the card on a piece of carbon paper, eliminating the possibility of human error in copying down the wrong account number. The carbon paper system was still being used by some retailers into the 1990s and remains a back-up method today for cards that can’t be read by electronic readers. This system lost its popularity, however, as magnetic strips were added to cards that could be swiped through a computer. These strips made the process quicker and easier without the waste of extra paper or the concern of leaving a copy of your card number behind.

Credit card processing is usually a seamless practice, but there is a lot going on behind the scenes.

When you make a purchase and hand over your credit card to a salesperson, the card is run through an electronic reader that instantly transmits your card information over a phone or modem line to a credit card processor.

The processing group confirms that your account is active, in good standing, and that you have enough credit available to cover the purchase.

Once this confirmation is complete, a confirmation message is sent back to the salesperson, who completes the sale. In most cases, you will need to sign a receipt, confirming that you are the person authorized to use the card. This is a great way to prevent credit card fraud, since a thief will probably find it difficult to reproduce your signature.

All this information is kept by the credit card company, which then sends you a bill each month. You will usually have a month to pay off the bill before incurring fees based on your interest rate.

The entire process occurs quickly and efficiently, but there are still occasional problems caused by power outages or computer problems.

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Different Types of Processing

Many different merchants need reliable credit card processing for their business to thrive, from large retailers to business firms to small companies. Technology has helped provide a way for most of these merchants to collect their earnings.

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Point of Sale

This is probably the most familiar type of credit card processing, since it is used in most retail stores. The salesperson simply runs your card through a small handheld credit card machine or a special scanner built into the cash register, and the system does the rest.

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Internet Processing

Many Internet-based businesses are able to accept credit cards through an online processing system. Making sure the site is secure is the toughest part of processing. Most companies provide a secure, encrypted environment for your credit card number and have layers of security to prevent unauthorized attacks. If the system works correctly, any hacker who gains access to the list of credit cards will only find encoded numbers that can’t be used. Other companies who can’t afford the amount of security needed to protect accounts usually process their sales over the phone.

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Telephone Processing

Many small businesses and catalog companies process their credit card payments through a phone line. Using a regular touch-tone phone, the card numbers are entered into a system that verifies and approves the purchase. Merchants will usually use a special printer connected to their phone so they can make receipts of the transaction.

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Conclusion

Each of these credit card processing methods cost the business money, usually an annual fee and a small percentage of each transaction. But most merchants agree that the popularity of credit cards, the ability to provide good customer service and the amount of money generated through complete sales are worth the extra overhead.

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