THE NUTS AND BOLTS OF A CREDIT CARD SALE
With today's electronic processing technology, a credit card transaction seems quick and simple, but closer examination proves there is more going than meets the eye. When a customer uses their credit card to pay for a sale in the merchant's store, the most common scenario, the transaction begins when the merchant swipes the card through the point-of-sale terminal and enters the sales amount. The terminal electronically reads the customer's account information from the magnetic strip on the back of the card and dials out to the processing network through the regular phone line connected to the back of the machine. Once the network is reached, it decodes the electronic message and transmits the data to the appropriate places. The data is first sent to the cardholder bank, the bank that issued the credit card to the customer, for authorization. The bank verifies the card is valid and the sale is within the customer's available credit limit. An approval code is then sent back to the merchant's location. If approved, the network transmits the sales data to the processing bank so the merchant's account can be credited for the sale. The merchant account and bank routing information is programmed into the POS terminal when the merchant is first set up for processing service. Before the transaction is complete, the sales data could potentially be transmitted across the country and back again, if the cardholder and processing banks were on opposite sides of the country with the store where the sale is taking place being anywhere in between. Later, the processing bank electronically deposits the sale in the merchant's bank account and the customer sees the sale on his/her next credit card statement. While this is a very simplified version, it illustrates the power of modern technology that so much data and money could change hands all with the swipe of a plastic card!