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Money is at the heart of every business, allowing it to run and function. It’s straightforward to grasp how to pay using cash. However, thanks to technological advances, credit card payments are becoming increasingly widespread. Customers don’t realize what goes on behind the scenes of credit card processing because it is so fast. Where does the money go when a customer pays for a product, and who is involved in the process? We’ll walk you through the methods of the payment life cycle so you can see where your money travels in your small business.
During the credit card processing cycle, several stages occur. The first step in this payment life cycle is tracking where the cardholder’s money goes when they use their credit card to buy a product. The bank is the primary holder of this transaction, ensuring that funds are sent to merchants, sellers, cardholders, and buyers. These organizations collaborate in a series of steps to complete the purchasing cycle from beginning to end.
The first credit card processing stage is order capture or payment validation. This step ensures the customer can pay for the product they are purchasing. This first stage occurs when a customer submits an order online or pays in-store through a checkout system like the NRS Point of Sale System. If the consumer is paying with a card, authorization will take place. The merchant or seller will need approval from the issuing bank that the customer has sufficient funds to pay for the product. If the issuing bank approves the purchase and grants validation, the payment moves to the following process stage.
The second stage of the cycle is the release to fulfillment or reservation stage. Before purchasing a product online or in person, this stage comprises double-checking that the funds are accessible. The issuing bank certifies that funds are available to cover the purchase. The product(s) can be released to fulfillment once approved, which means that the customer’s order can be prepared to be fulfilled.
The final stage of the credit card processing payment cycle is shipping or finalization. When an online purchase has been finalized, the consumer will receive a confirmation message from the fulfiller that the product(s) has been shipped. Once the transaction is finished, the issuing bank, card company, and acquiring bank (and processors) can take their share of the funds which they receive in fees. The consumer will also see the charge for the purchase on their card billing statement.
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