What Happens When You Charge a Purchase on a Credit Card?
Many businesses accept credit cards, which allow buyers to quickly make purchases and to pay for them down the line. However, the business owner receives reimbursement much sooner for the items or services that were sold. There are several things that occur once that credit card has been swiped through the reader to complete a transaction.
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Processing
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A credit card has a magnetic stripe, sometimes referred to as a "magstripe," on the back. Contained within the magstripe are three tracks. Each of these tracks contains different information that details the cardholder and the credit card account.
After the magstripe is swiped, the credit card processor sends the information to the banking institution that issued the credit card and confirms that there is enough credit available to make the purchase. It then approves or declines the sale based on that response.
Merchant Fee
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When you use a credit card, it costs the merchant money. The credit card company not only makes money from you, the consumer, in the form of interest payments, but it also takes a slice of the pie from the merchant. This is why some merchants have a "minimum" amount that can be charged, or a fee for paying by card. Otherwise, on a small purchase they might be giving up their whole profit.
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Payment
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When you use a credit card at the store, you are agreeing to make a payment at a later date. But the store receives payment from the bank that issued the credit card within the next day.
There are four pieces to the puzzle when a payment is made: the merchant (the store or business; the acquirer, which is set up to process the transactions; the issuer (the bank that will make the payment); and the network manager.
Visa and MasterCard are examples of the network manager. They provide the network on which transactions take place. So one swipe of the card actually affects four separate entities in terms of payment. And it affects you, probably most of all.
Time Line
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When you make a purchase on your credit card, you might notice the word "pending" next to the purchase when you log on to your bank or credit card account. This means the merchant has not yet received the money for the transaction. The money must first be transferred from the issuing bank, through the acquirer (sometimes referred to as the merchant bank), and ultimately to the merchant. This can take a couple of days.
Purchase Protection
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Under the Fair Credit Billing Act, a consumer may withhold payment on a purchase on poor quality or damaged merchandise. To get this protection, the purchase must be greater than $50 and you must call your credit card company to stop payment to the merchant. Also, the purchase must have taken place within 100 miles of where you live.
Although the amount and mileage are technical parts of the law, many credit card companies will provide purchase protection for purchases made for less than that amount or outside that radius. Additionally, as credit card companies became more competitive with each other, more protections were extended in terms of warranties. Each purchase protection plan is different, so contact your credit card company to learn about its purchase protection on your credit cards.
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References
- Photo Credit credit card image by feisty from Fotolia.com
