Working of Card Systems

1.In the purchase process, the customer approaches the store, selects what he likes and then approaches the checkout counter. On the 'checkout counter, he asks for a consolidated bill of his purchases and offers to pay by card.

2. The merchant now asks for his credit card number and some other authentication (like in the case of debit cards, some authentication like the Personal Identification Number is needed, or in some credit card purchases, Date of Birth is asked). The merchant now has all the necessary details including the amount of purchase and sends these details to the acquiring bank, which further checks with the issuing bank through the Interchange network. This Interchange network (like Visa or MasterCard) provides worldwide connectivity amongst the banks. The acquirer asks if the card is valid and that the credit is available or not. The issuing bank authorizes the transaction or rejects it whatever may be the case. This authorization is generally valid for a lirnited period of time (usually 3 days). The acquiring bank now, on receipt of authorization, forwards it to the merchant and waits for him to give a confirmation of the order. The merchant, asks the customer to confirm the purchase and on confirmation arranges for delivery. The merchant along-with-it sends a confirmation to the acquirer. The acquirer will credit account of merchant and the process ends as far as the customer and the merchant are concerned.

3.The clearing is more or less taken care by the Interchange network. These Interchange networks are the ones who provide the actual service. The banks are mere franchisees, which sell the services. The issue of clearing of payments and transfer of funds is taken care of by the Interchange network. The transfer of funds is done in this step.

4. The issuing bank, after it has paid up the acquirer, now will debit the account of 'the cardholder. It keeps a record of the cardholders monthly transactions and at the end of the month, sends a bill giving those details. The cardholder pays up his bills or extends them (only in case of credit cards) as per his wish.

This method has been in use for all these years and doing well satisfying the need of commerce. But now with the growing bulk of trade on the net and an alarming rate of increase in cyber crime, the loopholes of this system are evident. It is not only very difficult for a merchant to find out that the person giving the card number is the owner of the card, but also that the system for authentication is painstakingly slow and not worth. Then there have been cases of sniffing on the network and credit card numbers are inevitably misused.

Domain Name Search