There is a general misconception among consumers who hold credit cards that credit cards are like bank checks. When you write a check, it goes to the bank of the recipient, passes through that bank and a clearinghouse, and then through your bank to get paid. With modern technology, the check can clear both banks and the clearinghouse within minutes, hours or just one day, given the electronic devices that send signals through the banks and the clearinghouse to get the check through.
With credit card processing, the process is much more complicated and takes a much longer time to clear the charges for a purchase. Only when the credit limit is maxed out on a card does the card bearer receive the immediate notification that the purchase cannot be processed. So, how many credit card processing players are there otherwise? The answer may surprise you.
Almost a Full Baseball Team
In many cases, the number of “players” in credit card processing is almost a full baseball team. You could have up to six or more “players” involved with your credit card purchases, which boggles the mind when you think about how easy it is to just swipe and pay with your card and not think twice about it. What’s more, these “players” are not individuals, either. They are organizations and financial groups. Here is the “line-up” so you can see who’s doing what after you swipe your card.
1. POS (Point-of-Sale) Merchant Equipment
In order for you to use your card at a shop or store, the shop or store has to have a POS system. This system allows you to swipe your credit card at time of payment, register the payment as made, and then register your card’s use with the POS system and card companies. Because most shop and store owners pay to use this equipment, each credit card swipe costs them a few cents to a dollar or more to have this convenient form of payment acceptance.
2. The Card Issuer(s)
The annual dues you pay on your card goes, in part, to the card issuer. They make a profit by issuing you the credit card and “printing” credit cards for consumers. There may be more than one issuer involved in each transaction, depending on your card. For example, a Visa card issued by Chase and partnered with Toys R Us technically has THREE issuers who have partnered together to provide consumers of Toys R Us with a credit card that can be used in-store and at other retailers or merchants.
3. The Bank Backing the Card
The bank that backs the card and extends the credit to you takes its portion of every sale in the form of the monthly payment to repay them for your purchases and the interest they charge on your card. In essence, they are loaning you money to make a purchase, then charging you interest on that “loan.” When you make a payment, you are repaying the bank that backs the card.
4. Payment Processors
Payment processors are to credit cards what clearinghouses are to checks. They process the payments for any and all credit cards and credit card payments. They help disperse the funds and interest garnered on the purchases you make.
This is a fancy way of saying that an organization or bank acquires the payment and sends it onward to the issuers. The acquirer makes a few cents on every purchase after acquiring the payment from the merchant and then acquiring a fee to send the payment on to th issuer(s).
As you can clearly see, using a credit card may seem really easy on your end (as the consumer) but it is much more complicated after the store or merchant takes the payment from your card.