Payment by credit card – how it works

credit card payment

The credit card is pulled out particularly quickly today when it comes to making a cashless payment. It is now one of the most popular payment methods and scores with a high level of security but also with a particularly practical way of use. Hardly anything is as easy as paying by credit card. Both in shops or at petrol stations and on the Internet, the credit card is a payment method that is very popular. However, hardly anyone knows how payment with the card actually works properly. The way the credit card works is more complex than it looks at first glance. Even if the payment can be carried out within a short period of time, a whole chain of different plot lines is necessary for it to be carried out.


An overview of how the credit card works

An overview of how the credit card works

A three-party and a four-party system should be differentiated in terms of how they work. If the credit card is issued directly by the credit card provider, like American Express, then it is a three-party system. It is different, however, if the issuing body is not the provider but a bank or a company. In this case, it is a four-party system, which of course requires one more step.

Payment is made in several steps:

  1. The customer hands the card or card number to the service provider
  2. The service provider reads the data
  3. The data is checked
  4. The validity is checked
  5. It is transmitted to the merchant bank and to the credit card company
  6. There is a transmission to the customer bank
  7. The card or the customer’s account will be debited with the amount

Even if the steps themselves only take a few seconds, there is a particularly complex system behind the payment by credit card that is used here.


What do the individual areas benefit from?

What do the individual areas benefit from?

Payment by credit card is generally free of charge within Germany and Europe. In addition, interest does not even have to be paid if the customer reimburses the amount used to the bank or credit card company within a specified period. Now, of course, the question arises as to what the bank or credit card provider actually has from issuing a credit card or how they make their money with it. This question is interesting for customers if only because the answer to it can also be found in the credit card payment process.

The credit card company is so involved in the credit card payment process that it makes a booking. The company receives the message about the use of the card and continues to book the transaction to the bank. The bank pays license fees to the credit card company. A distinction must be made between dealer and customer banks. The dealer’s bank must pay the fees as well as the customer’s bank. If you do not pay any license fees, you must not offer credit card payments or issue credit cards.


There are also interbank fees

interbank fees

The dealer bank pays the fee to the customer bank. This is how the customer bank earns from the transaction. It is important to know that the customer pays these fees themselves since these are already included in the amount that is paid with the credit card. This is one of the reasons why not all retailers or service providers offer credit card payments. With a payment of, for example, 100 dollars, the dealer bank receives only 99.50 from the customer bank and the dealer himself earns only 99.20 dollars. The higher the amounts, the higher the losses for the dealer. .

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