Credit Card

Have you ever wondered how your credit card works , i do not mean about the interest rate and all that , but , how is the merchant getting paid and how is your account charged .. let me explain

There are 5 different entities involved in a single card transaction

1) Card Holder : That is you

2) Issuer : This is the bank which issued the card to the Card Holder , and who has an agreement with Card Holder regarding payment

3) Merchant : This is the retail outlet , which has agreed to accept the card

4) Acquirer : This is also a bank , which has issued the card swipe machine to the merchant and with whom the merchant has a bank account

5) Payment system : Visa , MasterCard , Amex, Dinner, etc .

From the point you swipe the card to the point merchant finally gets paid ,there are two systems involved

i) Authorisation :

ii) Clearing and Settlement

Authorisation :

When your card is swiped at the merchant location and when the merchant punches in the invoice amount , a call is made from the merchant's swipe machine to the "Acquirer" and your card details are shared with the Acquirer for authorisation. The Acquirer forwards this request to say VISA , which in turn contacts the "Issuer" of the card for checking the validity and credit limit of the card , on receiving a authorization from the "Issuer" , VISA forwards it to the "Acquirer" and who in turn forwards it to the merchant .

Clearing and Settlement :
Once the Authorisation is done , the merchant gets the transaction slip signed and deposits it at the "Acquirer" , who in turn would pay the merchant the money and raises a request to VISA for settlement . VISA pays the "Acquirer" and debits the amount from the "Issuer". The "Issuer" in turn charges this to the "Card Holder" and sends the card holder a Card statement .

The Payment system acts a bridge between "Acquirer" and the "Issuer" , who may be in any part of the world.and for providing this service they charge a fee for every transaction.
source: www.visa.com

Safer online usege of Credit Cards

If online use of Credit Card has been your concern , I do understand that earlier this years RBI made it mandatory for online sites to add a addditional layer of authentication , but the problem with this is that only India based websites have this additional layer, that leaves your card open for a misuse on all non India based website ( which is pretty much the entire internet )

This virtual Card offering from HDFC , takes card of this too http://www.hdfcbank.com/common/onlineservices/netsafedemo/demo_new.htm

If you find anything better let me know