Credit and debit card processing
A credit card is used for buying now and paying later whereas a debit card is used for paying now but not with cash. While a credit card is similar to a loan that must be repaid by the next month, a debit card is similar to a personal check. Credit and debit card processing differs because credit cards do not require funds to be parked in any checking account while debit cards are given to those with a checking account.
Credit card processing
When a person uses a credit card, it is like taking a loan to pay later. While making a purchase or paying for expenses at a point of sale or ATM, the credit card user swipes his card at the credit card machine of the merchant involved. He also signs a bill to that amount. The merchants bank or Credit Card Company reconciles the accounts every month and conveys these transactions through their internal communication system to the credit card holders bank or Credit Card Company. The bank then reconciles such information from various sources before compiling a credit card bill for each of its customers. This bill is then sent to the credit card holder who can pay either the entire amount of the bill or a minimum amount that is decided upon by the bank. If the credit card holder delays the payment, he is charged a late fee payment in his next bill. Interest is also charged for default in payment. The interest rate varies from company to company.
Debit card processing
There are two main types of debit card processing. These include
- Online debit card processing or PIN debit card processing
- Signature or offline debit card processing
There is also another kind of debit card processing known as the Dial Pay debit card processing which involves the use of a telephone for making payments using a debit card.
Online debit card processing
A PIN or personal identification number is given to the debit card holder who must type it into the PIN pad at the terminal or point of sale where he wishes to use his debit card. The PIN is card holder specific and verifies the card and user identity through encryption. The money is deducted from the card holders checking account as soon as the transaction takes place.
Offline debit card processing
Here a merchant account is required which records the debit card holders transaction and then the same are conveyed by the merchants bank to the debit card holders bank.The money is deducted from the debit card holders checking account after the transaction is hard posted to his account. This deferred posting of offline debit may happen after 2 to 3 days of the actual transaction.
Dial Pay debit card processing
A third type of debit card processing, this process requires the use of a telephone and a printer. The debit card holder who does not have high volume card transactions finds this an easy way to transact as he only issues instructions to his bank to pay at the time of any financial transaction. The bank verifies the caller on the basis of a telephone PIN that is card holder specific.
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