Transactions where payment is made with credit cards are the most common, both in the “real world” (where you can also pay in cash, sometimes by check or even by bank transfer) and in online stores (where you can often also pay with PayPal and sometimes with bitcoin (the most popular digital currency).
In order to make the process of receiving payments from your customers more effective, and certainly when you sell products and services by clearing credit card oman phone number library payments online, it is very important to know how things work and understand the terms used in this field. This post is your chance to gain complete knowledge about credit card payments, here you will find a compilation of all the information you need.
What is a Credit Card Really?
We all use them and know that they are a convenient payment method that also allows us to pay in installments over several months, sometimes over 12, 24 or even 36 monthly installments. The fact that they have become so popular is precisely the reason why we should know more about them: where they come from, what can be done with them today and what the future holds for us.
Since the beginning of the 20th century, merchants often extended credit to their regular customers. Things slowly evolved from cardboard cards issued by shops and large companies that were only accepted by the place of business that issued them, to the 1940s and 1950s, when American banks offered their customers a card that they could use for payments at local businesses. Merchants then transferred their demand for payment to the bank; the bank then paid and settled accounts with their customers by deducting the payment from the balance in their bank account. It was not until 1961 that a plastic card similar to the ones we know appeared for the first time. This was the Diners Club card, which was used to pay mainly for products and services related to travel and recreation. American Express was also quick to issue plastic cards.
These older credit cards operated on the principle of a closed circle consisting of the buyer, the seller and the credit card company. Initially, customers had to pay the full amount that the credit card company made available to them at the end of each month; but very soon credit card companies began to allow payment in installments.
In the 1970s, Visa and MasterCard appeared. The big credit card companies with which banks and other institutions could make agreements and offer their cards to the bank's customers. Transactions then became more complex because they now involved a customer, a merchant, a credit company, and the banks (the customer's bank and the merchant's bank). Initially, the information required for the transaction (cardholder's name, bank account number, card number, and expiration date) was embedded in the card with raised letters and numbers. Since the invention of the magnetic stripe, the information is stored on that stripe, and since computer communications have developed sufficiently, it has become possible to scan the information from the magnetic stripe, transmit it in real time for approval, and execute the transaction according to the terms agreed upon by the merchant, the credit card holder, and the credit card company. Today, credit card companies are adopting "smart cards" containing an electronically readable chip according to the EMV standard (Europay Mastercard Visa).
One-time offset versus authorization to make recurring offset
Most credit card payments are made through a single clearing process, even if the sum itself is divided into instalments. In some transactions, the cardholder agrees that his or her credit card data will be retained and that the company will perform one or more additional clearing actions in the future, i.e. in accordance with the conditions agreed in advance.
Recurring compensation is common when there are, for example, monthly subscription fees. The right to use the service is granted as long as the monthly payments continue to be made automatically; if the cardholder indicates to cancel them, the subscription is not renewed. The recurring payment model is called SaaS (Software as a Service) because it is well suited for the ongoing use of software; use is enabled as long as the subscription fees continue to be paid.
Basic terms from the world of credit card clearing
If you want to understand the processes, technologies, tools, products and services associated with the use of credit cards, you need to know the terms used in this field. We have put together a list of these terms for you with a brief explanation of each one.
Credit Cards, Charge Cards, Debit Cards – in Israel people refer to any plastic card used to make payments as a “credit card”, but in English a distinction is made between credit, debit and charge cards. In fact, only Credit Cards are real credit cards that allow you to defer and/or spread payments. When using a Debit Card, the payment amount is immediately withdrawn from your bank account balance, while payment with a Charge Card is deducted at the end of the month (all payments made with the Charge Card during the month are deducted as a lump sum, in one go, at the end of that same month).
Card Association – These are essentially credit card companies, an organization made up of several financial institutions that sells its services to the bank such that the banks can issue credit cards to their customers on behalf of that organization. The largest credit card companies in the world are Visa, American Express, Diners, Discover, MasterCard, JCB (Japan Credit Bureau), Europay and others.
Credit Card Company Brands
Credit Card Company Brands
International Clearing – In the past, conducting business transactions with people and organizations from other countries was a complex matter, due to the need to transfer payment from a bank account in one country to an account managed in a different currency, in a different country. To make a purchase in a non-local online store, you need to use an international credit card (all major credit card companies issue such cards) – the same type you would carry with you when traveling abroad to make payments and withdraw money from ATMs there. International clearing itself is done in a similar way to local clearing, except that it is necessary to use the services of an international clearing service provider (such as CreditGuard). The problem of using different currencies is solved by converting the currency at an exchange rate agreed upon by both banks involved in the transaction, as well as by the credit card company and the clearing service company.
Tokenization – One of the biggest problems associated with online credit card clearing is the need to encrypt the data so that it does not fall into the hands of criminal elements who could use it to steal money from cardholders’ bank accounts (note that in such cases, the credit card company almost always takes responsibility and compensates those whose credit card was used illegally). There are two methods of protecting sensitive credit card data; one method is encryption and the other is called “Tokenization”. Through the Tokenization method, the credit card information is replaced by a “Token” that is randomly formed (not by an algorithm as is the case with encryption) so that the actual information is never stored on the servers of the business receiving the payment. Companies that provide online credit card clearing services must comply with strict data security standards: the PCI (Payment Card Industry) standard and the DSS (Data Security Standard Card) standard.
Payment routing – for online transactions where payment is made by credit card clearing, there must be a way to transfer the paid money from the customer’s bank account to the merchant’s bank account. There is often no direct way to do this, so in such cases, the clearing service provider needs to transfer the payment through additional financial institutions in order to complete the transaction.
