Ender_Stonebender's Journal: Credit card processing

Okay, here's the deal: Using your credit card is easy. That's because MasterCard, Visa, Discover, and American Express have worked very hard to make sure you didn't have to do much.

Here's the mnemonic for remembering how it all works: M.A.N.I.C.

That stands for Merchant, Acquirer, Network, Issuer, Customer.

Merchants are, obviously, the people with things they want you to buy. They obtain (buy, rent, lease, whatever) a credit card terminal or e-commerce solution, which is then programmed to connect to an acquirer. (Custom and semi-custom solutions are quite common in this industry.)

Acquirers are generally banks. They provide a group of merchants with connectivity to the credit cards networks, as well as certain other services, such as certifying terminal applications, reporting functions, etc.

Networks are...well...credit card banks. They connect the various banks to one another using their own message standards. (Note that in the case of Discover and I believe American Express, the network and the issuer are the same entity.)

Issuers are the banks that hand out credit cards. They connect to the network(s) and keep track of how much money you have available on your card. (Not how much you've spent. They may not know that, due to situations like restaurant tipping and the rules for dealing with CCs at hotels.) They also send you the credit card bills and charge you interest.

Customers are people buying stuff. That's you.

So here's what happens: Customer walks in Merchant's shop and choose PrettyShinyThing to buy. Merchant rings up merchandise, Customer forks over card. Merchant swipes card through terminal. Terminal verifies that card in not totally bogus (First six digits of credit card number are in a range known to be "valid", check digit is correct, expiration date is not in the past, etc.) Terminal sends authorization request to Acquirer. Acquirer does some other checking on the authorization request, reformats the message and sends it to the appropriate network. Network forwards it to the appropriate issuer. Issuer decides if Customer has enough funds left in their Open To Buy. If so, that amount is deducted from Open To Buy and a response is sent to the network authorizing the transaction. Network routes this back to Acquirer. Acquirer reformats and routes back to the Merchant's terminal. The terminal then prints a receipt for Customer sign. Depending on the setup, the Merchant may need to send in a settlement request at the end of the day, or in some cases this may be unnecessary.

So that's the deal with card credit processing. And I bet thought that it was simple.

Thank You

[Murphy Murph]

Thank you for this very informative post.

Excellent explanation!

[jordandeamattson]

Hi -

Excellent explanation. Extremely informative and helpful. I wish you had posted it in the main thread!

Yours,

Jordan

thanks

[ricochet81]

yes, I thank you as well. It was always foggy for me. I run an ecom site, but just have the CCs stored to a db, which is accessed by the merchant via a secure ssl page and they manually type it in their machine. thinking of changing that.. buh.. they're old school, and it works. avoids these problems. hmmm. thanks again.

Simple?

[nacturation]

Seems so. Unless I'm missing something, it doesn't really appear to be all that complicated. Somehow the merchant needs to know your card is good, so it passes through various nodes of a network until it reaches the bank/company that issued the card, and it responds and forwards it back down the chain until it gets back to the merchant.

Re:Simple?

[Ender_Stonebender]

Well, the concept is simple. Implementation is difficult and complex; as is complying with the various laws and requirements that Visa/MC impose on process. And it's far from "The number that the terminal dials has a computer that knows everything connected to it".

--Ender

New CC rules

[RobertB-DC]

I heard recently that Discover, American Express, Diner's Club, and other card issuers recently succeeded in their court case against Visa and Mastercard. V/MC can no longer tell banks that they can't issue competing cards, so you could see (say) a Fifth Third Diner's Club card. Will this change the validation method you described, or will it just be a different Network in the MANIC system?

Authorization only

[hayek]

Informative entry, but you only describe the authorization process. In most credit transactions in the US, there is a second "message" for clearing the transaction (i.e. moving the funds from the issuer to the acquirer). These messages are usually sent in a batch process that occurs a few times a day.

Also, I think AmEx is the acquirer as well as the issuer and network.

-Hayek