• Shashank Raj

How Card Payment System Works ?

Before How, you must consider What is EMV ?,so you need not worry I would give you a brief history of EMV.


So EMV was basically a payment system created by three global players namely Europay (E) , Mastercard (M) and Visa (V), but now used by all payment processors across the world. So this was addition to the existing magnetic strip technology to the card, rather than swiping the cards issued now-a-days need to dipped in the POS (Point of Sale) Machine to authenticate and process the payment.

This is the most basic design I could create in a mere space of time, but nevertheless here the 6 PIN CHIP is simply the EMV (Basically there are two types of chips in the market 6 PIN and 8 PIN, you can reach out to me, if you wanna explore more on this), and the VISA logo in the lower right section of the card is the switch processor, and by switch processor I mean to say that it is simply an entity which routes transaction from merchant to customer and customer to merchant simply.


At present there are mainly four prominent global players in the payment space namely VISA, MASTERCARD, AMERICAN EXPRESS, DINERS CLUB out of which VISA and MASTERCARD rule & dominate the market predominantly.


So without wasting much time, let me explain how it works,


  1. The customers present the card to the merchant who is equipped with a POS machine, and upon verifying the eligibility whether a said merchant accepts a particular card (Say, a particular merchant accepts VISA cards but does not accept AMEX and DCB) or not and then he finally dips or swipe the card in the POS (Point of Sale) machine, now-a-days mostly the cards are dipped in the POS machine due to the fact that this technology is much more reliable than swiping instead.

  2. Now the merchant enters the amount to be charged and the cardholder verifies it and accordingly enters the PIN (Personal Identification Number) and the merchant processes the payment and the POS machine takes up a few seconds to generate a charge slip, during these few seconds main things happen.

  3. As soon as the merchant POS machine processes the payment, the charge amount along with you card details is sent to the acquirer bank ( also know as merchant bank or simply the bank which has provided the merchant with POS Machine).

  4. After this the acquirer back sends the details (gained from the POS machine) to the payment switch processors (i.e. VISA, MASTERCARD, AMEX, DCB etc.) and these payment switch processors then send these details to the issuing bank (The bank which has issued the card to the cardholder) to verify the card details, amount, PIN etc. and accordingly decide whether to authorize the transaction or not.

  5. If the issuing bank authorizes the transaction a charge slip is printed out of the POS machine otherwise the transaction simply stands failed, and the merchant needs to re-initiate the process once again.

So much happens in just a tiny fraction of time, the world has really progressed a lot.



BONUS:


These payment switch providers charge a fix rate of transaction fee, this could be understood by a following example,


Example: Lets say that you made a payment of Rs 1,00,000 (Currency: Indian Rupee) to ByteBlogs so me i.e. ByteBlogs does not receive the full amount of Rs 1,00,000 rather I would get somewhere between Rs 96,000 to Rs 98,000 depending how well I have negotiated with my acquirer bank, and in these transaction fees of Rs 2,000 to Rs 4,000 there is a share of payment switch processor, the card issuing bank and the merchant acquirer bank, so simply three entities share this chunk of the transaction amount based upon their pre-agreed terms.



So, this is the end of my today's blog. I am extremely sorry for the long pause in the blog posts and delay was due to the fact my annual exams were going on with lots of other stuff eating away my time. So, I hope you got my point and you can interact with me through the box below.

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