By now, chip and PIN machines for small businesses have become ubiquitous in the UK. Merchants use their point of sale (POS) machines easily and intuitively while customers are accustomed to punching in their memorized PIN. However, even though card payments are a simple daily activity, many people still wonder how credit card payments work.
Before explaining how they work now, let’s take a look at how card payments used to get processed. In the beginning, credit card holders paid for a product or service by handing their card over to the vendor, who would then take an image of it in triplicate, often using the card’s embossed numbers to produce a stamp-like image. The customer signed the docket that was produced, and this was checked against the signature on the back of the card. The merchant kept one copy of the transaction documentation and another was given to the customer as a receipt. The third copy was sent to the credit card issuer.
With the introduction of the chip and PIN machine, this process went paperless, forever changing the way small businesses operate. Here’s how credit card payments work now:
Card processing happens instantly (between 3 and 15 seconds), but it’s actually a complex series of steps:
1. The customer presents the credit card (or the card number, expiration date and security code) to the vendor
2. The credit card data is sent to the vendor account provider using a chip and PIN machine, like the payleven Classic
3. The vendor account provider communicates the card information to the credit card company’s network (e.g. Visa, MasterCard, American Express, etc.). Typically this is done by an intermediary, like a larger payment processor
4. The credit card company asks the customer’s bank if the funds are available. If the funds are available, the transaction is authorised
5. The issuing bank tells the credit card company what the result of the transaction was (authorised or declined)
6. The credit card company communicates the result back to the vendor account provider
7. The vendor gets the result and a receipt is generated
Hopefully, this will have given you more of an understanding of how credit card payments work. As you can see, we’ve come a long way: there is no longer a need for a physical swipe of the embossed surface of the card, which is a time-consuming and inefficient process. Now, credit cards have their data stored within the magnetic strip along the back of the credit card, as well as in the card’s chip. Chip and PIN machines are capable of reading this data, while protecting it – sensitive data is not stored and transmitted data is encrypted.
A further innovation in credit card processing came about with the recent introduction of mobile chip and PIN machines. Under a mobile system, such as that offered by payleven, small businesses do not need a physical payment terminal in order to accept credit card payments. This is an asset for merchants who only occasionally accept credit card payments and don’t wish to buy or rent their own terminal. It’s also advantageous for merchants who can’t connect to a telephone line, like market stall vendors. Mobile chip and PIN machines are also used by professionals who provide services outside of a conventional business location, such as plumbers and electricians, who work in the homes of their clients. It’s also a great choice for charity workers, who accept door-to-door donations.
With payleven, payment is fast and easy – we simplify your daily business. Visit us today: www.payleven.co.uk