Nowadays millions of people use credit and debit cards to buy goods and services, but few understand how they actually function. In this guide, we'll explain the process in detail so you can learn the part you play as an online business owner. We'll teach you what you need to know, including how money moves from the cardholder to you, and how a payment gateway fits in. Then you can focus on what's important: making money and protecting yourself against loss.
When you use a credit or debit card to buy a shirt at a clothing store, as an example, you swipe the card through a reader or insert it. If it's a credit card, you then sign your name; if it's a debit card, you type your PIN on a keypad. Regardless of the purchase type, your card is tied to an account with a spending limit.
With a credit card, the spending limit depends on the amount of credit the issuing bank is willing to offer you within a given time period. With a debit card, the spending limit depends on the amount of money you've deposited into the bank account, as well as any time period-based limit the issuer may have set. These details are specified in your cardholder agreement.
If the amount of the transaction is less than or equal to the current account spending limit, the transaction is approved. The store gets your money and you get the store's merchandise. Both parties walk away from the transaction happy.
This exchange may appear simple, but it involves a lot of steps you might not be aware of. And as a merchant, they can impact you in ways you might not expect.
Proceed to Part 2: Behind the Scenes