The Process of Credit and Debit Transactions Explained
The credit/debit card is the simple plastic card used to initiate a transaction between a customer and a business (the Merchant) in exchange for goods or services. However, the transaction path associated with that card is anything but simple.
The Transaction Flow – Credit Card Processing
Example of a Terminal Capture Credit Card Transaction Workflow
To complete a transaction the Merchant, utilizing your software, will transmit critical transaction information to the Acquirer (who owns the merchant relationship) who, in turn, transmits the request to the Card Association (VISA, MasterCard, American Express, Discover and others) who processes the payment for the Acquirer who will then transmit the request to the Issuer – the customer’ credit card or banking institution – to approve and release funds to be sent back to the Merchant.
The Transaction Flow – Debit Card Processing
Debit transactions come in a couple of flavors- Signature Debit and PIN Debit. Signature debit transactions are facilitated directly from the Merchant to the Issuer as verified by the Card Association, and authorized against the customer’s bank account funds as opposed to a line of credit. PIN debit transactions are routed across the ATM or ‘debit network’, routing the transaction between the Merchant bank and the Issuer of the debit card.
There are trade offs for both the consumer and the merchant for paying with and accepting credit vs. debit transactions such as liability for fraud reimbursement, transaction fees to the merchant, authorizing against the funds in a bank account, etc.
What it means for Software Companies and Developers
According to a 2007 Federal Reserve Study (PDF will open), by 2006, credit and debit transactions accounted for 50% of all non-cash payments – making credit and debit card acceptance an entry requirement for businesses seeking payment acceptance solutions. To integrate credit or debit card processing a software company will choose a payment API to integrate to the Acquiring Bank’s payment processing platform to process the Merchant’s card transactions. In some instances, Software Developers elect to integrate to multiple Acquirer payment platforms (to provide their client multi-service capabilities) or through a payment gateway which may provide connectivity to targeted Acquirers. In any event, the decisions a Software Company or Developer makes about integration to credit/debit services will have a direct impact on their Merchant customers.
Development Decisions Affect Merchant Pricing
For example, pricing to the Merchant for credit/debit card transactions varies based on the profile of the Merchant business, the Acquiring Bank that will be processing the transactions, and the introduction of any intermediaries within the transaction flow (like payment gateways). In addition, there are several other factors that can affect the pricing Merchants will pay for transactions depending on transaction environment and selected features, such as keyed entry of card (card-not-present) vs. swipe of card (card-present), the use of advanced security measures (address verification, card ID, and PIN capture) and whether the application is coded to support advanced card features like Level II or Level III card data (corporate and government requirements). These factors are important considerations the Software Developer must take into account when evaluating payment processing options for Merchant customers.
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