The Plastic Swipe by Gabriel Nijmeh
I'm sure that most of us don't really know what happens between the time your swipe your credit and receive purchase approval (or, ugh, credit card declined). This is a process that happens millions of times over during the course of a day and one which we take for granted.
Let's VISA as an example, although this process works similarly for MasterCard. American Express works through a closed loop system whereby the company alone authorizes and settles all transactions directly with merchants and consumers.
1. You buy a new pair of fancy shoes for that upcoming dinner party using your VISA card.
2. The store clerk swipes your card and enters the price. The magnetic stripe on the back of your card is encoded with your card number and expiry date.
3. The merchant's terminal transmits the transaction to their bank, electronically imbedding the date, price and merchant information for the transaction.
4. The merchant's bank sends the transaction details to a VISA payment network called VISANet which links all 21,000+ international VISA members. The transaction will now include information about currency and country of origin.
5. VISANet routes the transaction to your card issuer which then checks that your account is in good standing and that you have the available credit to make the purchase.
6. Finally, the issuer's decision-- approved or declined appears on the merchant's terminal.
At the end of the business day, the merchant submits their VISA sales to their bank. Within 48 hours, the merchant's bank will issue a reimbursement and the merchant's bank submits its transaction records to VISANet for settlement, and is subsequently reimbursed within 24 hours.
Every month, the dreaded card statement is sent out to you detailing all of your transactions. At this point, the only people out any money is your bank and VISANet. It's now up to you to pay up or get dinged by those outrageous finance charges.
That's it in a nutshell. It happens so quickly and is something that we take for granted each and every time we make a purchase!
About the author: Gabriel is the editor and webmaster of The Money Advisor - http://www.the-money-advisor.com. He believes that everyone is capable of controlling their financial destiny with the right combination of rich thinking and smart action. The Money Advisor, a knowledge network of people, articles, tips, e-books and ideas about making money, saving money and building wealth!