Discover the Best Billing System Example for Enterprises

Billing system example for enterprises

the payment processing industry looks pretty simple on the surface however there are many parties involved in this seemingly basic process let's start with the participants involved the cardholder is the person who owns the credit card used to make a purchase the merchant is business that sells the products or services to the card holder the acquirer is the merchant bank that processes credit card transactions on behalf of the merchant then there's the credit card brand or network visa and mastercard are examples of networks used to process a credit card transaction finally the issuing bank is the financial institution that issued the credit card now let's see how these participants make a credit card transaction using this example bob a brick and mortar merchant sells an apple to a card holder clara for one dollar clara inserts her card into a chip reader and the point of sale terminal dials out to obtain an authorization code here's what happens next first the pos terminal sends the information to the acquirer the acquirer sends the details to the issuing bank via credit card network let's say visa and requests a payment authorization for a one dollar transaction from the issuing bank the issuing bank checks if clara has enough money checks if the expiry date is valid and verifies many other things including matching bob's business address and cardholder's billing address that's why you always need to call your bank if you travel abroad and would like to use your credit card in a different country once the issuing bank confirms that everything is correct it issues an approved authorization code and sends it back the same way it received an authorization request through visa and the acquirer bob sees the approved message on his pos terminal the issuing bank places a hold for one dollar on clara's credit card account for bob to receive the money for the sale he first needs to close the batch as cardholders come in and buy apples all authorizations are stored in the pos terminal in a batch and to become a deposit in bob's account he needs to settle the batch when bob settles the batch each authorization travels back to the respective issuing bank for a final clearing the authorizations travel via the same channels as before first they go to the acquirer and then via credit card networks to the issuers each issuing bank removes the hold and withdraws actual funds from the cardholders account instead next the acquirer funds the merchant's bank account now what about the processing fees the credit card networks bill the acquirer interchange fees for all of bob's sales once the batch is settled the acquirer then bills bob either on the same day sales minus fees if bob is on daily billing or the acquirer bills bob at the end of the month for all the sales processes in that month the card holder gets billed by its issuing bank and that's how credit card transactions work