How Do Credit Card Readers Work?

How Do Credit Card Readers Work?

In the world of technology, things get into upgradation in each second. From the manufacturing of computers to the invention of mobile apps, world has come to one click away. There is a time when people feel difficulty in taking cash outside of their residence and now we have credit and debit cards for that.

The use of credit cards is more as compared to debit cards. It is quite easy to use such card and make payment after a certain period of time. Credit cards can only be used in a place where the credit card readers are installed.  How does it work is explained below:

  1. Credit cards are having information of the customer and the reader reads it and then secretly transfers the data to the servers of bank and credit card networks. It starts from the swiping of card on the reader.
  2. It involves three steps i.e. Authorization, Capture and Settlement.
  3. In case of any purchase, when the seller / shopkeeper swipes the customer’s card. It then communicates the information and transaction details to the financial institution i.e. Acquiring Bank.
  4. The acquiring bank then sends the same information to the customer’s credit card company who checks the availability of money in the accounts of the customer and credit sufficiency. The issuing bank also uses such software to identify fraud and legitimacy of the transaction. After passing through all checks, the transaction gets the authorization mark and fund is withhold as pending.
  5. In the phase of Capture, funds then moved from Credit Card Company to the acquiring bank. Millions of amount will be transferred via credit cards and in order to pass through the phase, the entire funds pass in batches and therefore, the process is known as BATCHING.
  6. After authorization and capture, the final stage gets started i.e. settlement day. The fund from sale gets settled with seller’s bank account. It will take one or two working days. Because of the non-availability of cash, the seller may get into cash flows issues.

Through this, a customer is not required to take huge amount of cash with him and also can plan and control their budget requirements. Furthermore, it is an easy way to keep a check and balance on our funds. Your money is secure and your transaction has been recorded and verified through different networks keeping it confidential.