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Hi, I’m Gingergaye, President of Electronic Money Company, We’ve been doing Merchant Services for 20 years. I want to talk to you about how credit card processing works.
First, I want to give you a quick little background about how it got started. You know it used to be that if you didn’t have enough money you have to go to the bank and apply for a loan and get the loan. It took time and paperwork to do that along came Mastercard Diners Club which allowed people to take clients to dinner and not have to have the cash in their pocket but charge it. And as a result, the the bank made their loan interest on the card. It was like 30 days of interest and that’s what’s called the discount rate.
When you talk about merchant services rates, that was the discount rate. Now the restaurants love the idea because people could now spend more money than they had in their wallet or their checking account and they could spend it now. And to this day merchants love the fact that they can take credit cards because people can spend more money than they have and make a decision to buy right away after the 30 days if you don’t pay your bill then the consumer is paying interest on that loan.
Let’s get to the part now about how what happens when you swipe the card through the terminal. How does the money end up, in where does it go, and where does it bounce around, and how does it end up in the merchant’s bank account?
So when the card is swiped or depth it goes to your merchant services processor goes to the processor then it bounces off to the processing bank the processing bank then sends a digital inquiry to your card issuing bank they approve it and then everything backs up back to the terminal and you get an approval at the end of the day. The money goes to that same process of the batch goes to the processor which then sends it to the processing bank which then collects money from the card issuing banks goes back to the processing bank and back to the processor and drops the money into your merchant account.
Now the processing bank makes money on this. They usually make about a penny a transaction but they are making a whopping amount of money for keeping that transaction and sending those digital messages around with all the millions and trillions of dollars of money going through there the processor makes money servicing your account so the processor uh answers your question provides a terminal or gateway supports that service provides a reconciliation report and of course they’re dropping the money into your bank account.
So I hope this explanation helps you understand what happens when you dip a card into a terminal and it’s bouncing around and getting approvals and transacting money and sending it back, works like magic.
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