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How does Credit Card work? Credit Card Processing

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Credit Card Processing

Credit Card Processing Method

Now and then we are being approached by people offering credit card.  On the face of it, it’s quite tempting, as you need not carry cash. And not only that, one buy a product without paying for it at that point of purchase. Still, only a small percentage of people in India has availed credit card as they hardly know how a credit card works.

The following are the main stake-holders:

  • Issuers
  • Acquirers
  • Payment Networks

To understand the role of each, let’s consider a scenario :

Ramya went to buy a pen from a shop. She decided to pay through her credit card. She bought the pen for say Rs.500/-. She used her credit card issued by HDFC Bank to pay them. The shopkeeper was using a POS machine (Point of Sale Machine) which was installed by his banker ICICI Bank. The Card was having the emblem of a Visa.

In this case, HDFC Bank is the issuer. ICICI Bank is the Acquirer and Visa is the payment network. Say the MDR (Merchant Discount Rate) is 2.4%, then the shopkeeper will get Rs.97.6/-. The remaining Rs.2.4/- will be divided between the three stake-holders as per their agreed term.

The payment network links the two banks and confirms the genuineness of the transactions after getting it approved by the issuing bank.

In India, for most of the credit cards, the payment networks are VISA and Maestro.

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2 COMMENTS

  1. Exactly it is very tempting to get a credit card as almost everybody uses it for everything. It makes us want one, but as it is new to us, we may not know how actually the credit card works. One of my close friend never used a credit card so she issued one but she didn’t know how it is to be used as mentioned in the article that it has a payment network whether it was visa or maestro. She used it but was unable to withdraw it. Then she contacted the bank for the details and then she understood the procedures

  2. Yes, credit cards can be an issue sometimes as well can get help you in times of need especially if you don’t have any money available by the moment. But also they are not accept everywhere because some merchandiser are not willing to take the service charges of the banks.

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