1. Credit Card Processing 101
June 2010
First Data Learning Organization
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©2010 First Data Corporation. All Rights Reserved. All trademarks, service marks, and trade names referenced in this material are the property of their respective owners.
Confidential & Proprietary to First Data Corporation
Developer: 10
Rev 06/16/2010 V1.0

2. Agenda Introduction Credit Card Transaction Terms Authorization flow
Clearing flow
Settlement flow
Knowledge Check
Graphic from First Data Brand Center.

3. Introduction
The following presentation explains how credit card transactions are processed and settled.
When a cardholder uses a credit card to purchase merchandise, the transaction moves through a process that involves authorization, clearing and settlement.
Each step of the process involves an exchange of transaction data and money that must be settled and balanced.
This process ends when the cardholder pays for the merchandise listed on his/her monthly statement.

4. Five Actors on the Stage
Cardholder – The consumer who owns the card. Merchant – An entity that contracts with an Acquiring Processor to originate transactions. Acquiring Processor – An entity that communicates to Visa to gain approvals to complete cardholder transactions. First Data is an acquiring processor. Visa - The largest association member. Visa is the largest payment system, enabling 14,000 financial institutions to process over $1 trillion in annual transaction volume. Issuing Bank – The financial institution who issues the credit card. For example, CapitalOne, Chase, Wells Fargo.
Visa information gathered from in the About Us page. Logo also taken from from the graphics section.

5. The Credit Card Transaction Process
Step 1 - Authorization
Cardholder makes a purchase using a credit card. The merchant must obtain authorization for the purchase from the bank who issued the card.
Step 2 - Clearing
If the transaction is approved, the next step is clearing. In this phase, the Issuing Bank obtains basic transaction data from the merchant such as the amount, date and location of the purchase. This data is then sent to the credit card issuer for posting to the monthly credit card statement.
Step 3 - Settlement
In the final step, settlement, the funds are collected from the Issuing Bank and transmitted to the merchant. When a consumer uses a credit card, the merchant does not receive payment at the time of purchase. The bank credits the merchant’s bank account. The bank then sends payment to the processor who sends the payment to Visa. The cardholder receives a monthly statement and settles with Visa for purchases made using the credit card.
Let’s slow down and go into detail
on how this takes place.
Images Used in Presentation:
Comstock images: c ; ks4998
Microsoft.com: j ; j ; j ; j

6. Credit Card Transaction: Authorization
Step 1: Authorization Flow
Cardholder makes a purchase using a credit card. The merchant must obtain authorization for the purchase from the bank who issued the card.
The merchant swipes the credit card through a POS unit
The POS machine sends authorization request along with card data to Acquiring Processor, e.g. First Data
The Acquiring Processor, First Data, routes the authorization request to Visa.
Visa then forwards the authorization request to the Issuing Bank.

7. Credit Card Transaction: Authorization
Authorization continued.
The Issuing Bank verifies the authorization information then checks the account for available funds or credit and sends an approval or decline to Visa.
Visa routes the approval / decline to the Acquiring Processor ( F.D.).
The Acquiring Processor ( F.D.) sends the approval or decline to the merchant’s terminal.
The merchant completes the sale with the customer.
If approved, the customer is billed for the transaction on his next monthly statement.

8. Credit Card Transaction: Authorization
Now that the cardholder has originated a purchase….
The merchant has swiped/keyed the card….
The Acquiring Processor (F.D.) has routed the authorization request to Visa…
Visa has authorized that the cardholder indeed has an account...
The cardholder has receipt in hand and is walking away with a purchase…
How Does it All Clear?
$$$

9. Credit Card Transaction: Clearing Flow
What is Clearing?
Clearing is the process of posting the cardholder’s transaction to his/her statement.
Clearing also posts the transaction to the merchant’s statement.
How the transaction is processed will also post to the merchant’s statement.

10. Credit Card Transaction: Clearing Flow
How Does it Flow?
At the end of the business day, the merchant sends the sales transaction data to the acquiring processor.
The acquiring processor posts the sales transaction data to the merchant’s account.
The acquiring processor transmits the sales transaction data to Visa.
Visa sends the sales data to the Issuing Bank.
The Issuing Bank posts the sales transaction data to the cardholder account.

11. Credit Card Transaction: Settlement Flow
What is Settlement?
Settlement is the process of moving the actual funds.
This process debits the cardholder’s account and moved the money into the merchant’s account.
$$$

12. Credit Card Transaction: Settlement Flow
First Data submits request to Visa.
Visa in turn submits request to Issuing Bank.
Issuing Bank funds Visa.
Visa in turn funds First Data.
First Data settles funds with Merchant.

13. Summary
You have just learned how credit card transactions are processed and settled.
Each step of the process involves an exchange of transaction data and money that must be settled and balanced. Let’s check your understanding.
$$$
Graphic from First Data Brand Center.

14. Knowledge Check
Multiple Choice: Select the best answer from the options.
1. Which role does First Data play in the Credit Card transaction process?
 A. Acquiring Processor B. Association C. Issuing Bank D. Merchant
2. Which term best describes the clearing step?
A. Approve B. Post C. Process D. Transmit
3. How many times did money change hands before the cardholder paid for his/her transaction?
1 times B. 2 times C. 3 times  D. 4 times E. 5 times
Issuing Bank > Visa > Acquiring Processor (F.D.) > Merchant’s Account

15. Knowledge Check
Answer Key
1. Which role does First Data play in the Credit Card transaction process?
 A. Acquiring Processor B. Association C. Issuing Bank D. Merchant
2. Which term best describes the clearing step?
A. Approve B. Post C. Process D. Transmit
3. How many times did money change hands before the cardholder paid for his/her transaction?
1 times B. 2 times C. 3 times  D. 4 times E. 5 times
Issuing Bank > Visa > Acquiring Processor (F.D.) > Merchant’s Account

16. Credit Card Processing 101
First Data Learning Organization
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