How Does Credit Card Work?
when you swipe your card through a card reader, it reads the data on the magnetic stripe and adds information that identifies the merchant and the dollar value of the purchase. This electronic message automatically goes via telephone line to a computer maintained by the merchant’s acquirer, also a member of the Visa association. That computer reads the message and determines that you used a Visa card. It calls up Visa’s computer, which checks with Citibank’s computer to verify that you have a credit balance sufficient to cover the purchase.
If you have enough credit, the Citibank computer will send back a message to the Visa computer authorizing the transaction. Visa relays the message back to the terminal at the store. The entire process takes just seconds, and finishes by printing out the credit charge receipt that you must sign. Since the transaction is captured and stored electronically, the receipt is used only to settle disputes that might arise for example due to a stolen card with a forged signature,
The merchant submits a request for payment to its acquirer, which in turn sends it to Visa’s computer. The Visa computer passes on the request to Citibank’s computer, which posts the transaction to your account with Citibank. Visa’s computer consolidates this transaction with all other Visa transactions that day and settles the accounts among banks.
The merchant receives about 2 percent less than the amount you paid for the TV. That 2 percent is called the merchant discount, and is paid to the acquirer. The acquirer keeps a portion for his services, and pays about 1.4 percent of the purchase amount to the issuer, in this case Citibank. That 1.4 percent is called the interchange fee which is set by Visa. American Express does not have an interchange fee because it is both the issuer and acquirer, and keeps the entire merchant discount.
