Credit card swipe machines are ubiquitous these days. If you have ever been to a coffee shop, mall, a saloon, or even a petrol pump- chances are you have come across one. Usage of swipe cards offers greater convenience to its users, as they don’t have to carry cash for all their purchase needs.
So, what is a digital swipe machine? It is an electronically operated machine that transfers funds from the cardholder’s account to the merchants’ account. A physical card is swiped through the machine, which is then authenticated by the device for security purposes. Once the card is authenticated, the transfer of funds to the merchant’s account is initiated, which might take a day or two.
How Credit Card Works: Key Players
In making payment through a credit card, various key players play a crucial role in the whole process. Let us have a look at them-
- Cardholder – A cardholder is someone who owns a credit card and uses it on a digital swipe machine to make the payment.
- Merchant- In the real sense of the word, a merchant sells goods or services in the market at a special price. However, in this particular context the merchant is someone to whom the payment is made through the credit card and holds a merchant’s account.
- Acquiring bank – Acquiring bank or the merchant’s bank is the organization that allows the merchant to accept the credit card. It is a member of the card association. It is the bank that deposits the funds from the credit card to the merchant’s account.
- Issuing bank – Issuing bank or the cardholder’s bank is the bank that makes the payment to the acquiring bank for the cardholder’s purchase. It is also a member of the card association.
- Card association – Card associations like Visa or Mastercard are not banks that issue credit or debit cards. Instead, they act as the governing body of the financial institutions that issue credit cards. They issue guidelines for the institutions, are tasked with their management, and act as arbitrators in a dispute.
So, whoever has come across an android swipe machine must have wondered how this machine works? Well, there are various steps involved in the process. Let us have a detailed look at all the steps involved in how a card swipe machine works.
1. Swiping the card
Before any transaction can take place, the cardholder is required to swipe or tap the card to the digital payment machine. The magnetic chip present in the credit card comes in contact with the android swipe machine, which initiates the payment process.
2. Transition of information
Once the card is swiped, all the essential data like the card’s detail and details of the transaction are transmitted through the merchant’s terminal, software, or electronic payment gateway to the acquiring bank.
Once the acquiring bank receives all the relevant information, it routes it back to the issuing bank for approval. This information is routed through the Mastercard or Visacard’s blanket network. The Cardholder then receives the information of the transaction from the acquiring bank, which he either declines or accepts depending upon the transaction’s validity and ensuring if he/she has sufficient funds to make the transaction.
4. Response Code
After the issuer or cardholder accepts the transaction, a response code is sent through the card’s network to the acquiring bank. This response code is then sent to the merchants’ terminal, software, or electronic payment gateway, stored in the batch file, and queued for approval. A certain amount is also deducted as a processing fee.
Whether you are a merchant or a credit cardholder, it would prove to be of great help if you understand the nitty-gritty of the whole process involved in making the payment. We hope that this article has helped you to grasp this multi-layered process.