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How Does Credit Card Processing Work? - Principis Capital

947 ratings | 174276 views
Khan Academy shares this great informative video about who's who in the world of credit card processing and what role the processor plays in your business.
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Text Comments (76)
kushagra kumar (3 months ago)
Very nicely explained. Thank you.
amit kumar (4 months ago)
Stella Gaunson (4 months ago)
Thank You for your information…it is really helpful. #merchantstronghold
Vardhan Varma (4 months ago)
Im sorry to say you have given wrong information regarding processors. As some one already mentioned Visa is not a processor.
Tami Mendoza (10 months ago)
As a professional in this industry, this presentation really doesn't give a clear picture of how this industry really work.
Avijit Hati (10 months ago)
Visa master card those are schemes processor is something different it's like a third party who process the transaction on behalf of several banks and also acts as a mediator while exchanging interchange fees example Network International
merchant stronghold (11 months ago)
Great video thanks for the explanation. #creditcardprocessing
Daniel Brain (11 months ago)
Great video uploaded, I like the way you tied all the information together. You certainly touched on some key points about Credit Card Processing responsibility . Merchant Stronghold Thanks...
Nepali Duniya (11 months ago)
so well explained.
James Thomas (10 months ago)
Yes,Very well explained.Puppyloveprocessing is the best website for credit card processing which will help for all animals.Best website for credit card-https://goo.gl/QDPXCf
ChillyWilly007 (1 year ago)
Visa, MasterCard, Discover and AMEX are the card brands not the processors
Sandeep Patidar (1 year ago)
Try MerchantStronghold's debit and credit card processing, check processing (ACH), payment gateways, and charge-back management services #Merchantstronghold
Michael S. Deleon (1 year ago)
Outstanding! This is a very detailed and helpful tutorial about Credit Card Processing work ,It helped me a lot and cleared all the questions , Thanku for that. #merchantstronghold
Rhea Rao (1 year ago)
Who's paying the 2%? The customer or the grocery store?
Miguel A. Carpio D. (1 year ago)
I use www.miunic.com ..for accept credit card payments
Mohsin Nadaf (1 year ago)
Nice Explanation👍 Thanks!
Euphoria One (1 year ago)
nice explanation and good skills in handwriting :D
danny bui (1 year ago)
Thank u
Mrunal patil (1 year ago)
Khan Academy is the Best.
michal (1 year ago)
Craig Walker (1 year ago)
This demonstration is somewhat helpful, but unfortunately provides incorrect information about the participants, transaction flow, fees paid by the merchant and to whom they are paid. Bankcard processing can be complicated but fairly easy to learn with some effort. The poster of this video should first become a (SME) subject matter expert. 1. Visa, MasterCard, Discover and Amex are not processors, they are Payment Brands + Networks. Only financial institutions may be memebers of the networks. 2. Processors can be bank owned or stand alone companies that sell card acceptance services i.e. merchant accounts. 3. Processors generally contract with ISO/MSP's to market their card acceptance services. 4. Processors and ISO/MSP's must be sponsored by an acquiring bank. 5. Processors generally maintain one or more front end authorization networks. 6. So the participants involved in a transaction are ISO/MSP (only if they signed the merchant), processor, payment brand network, acquiring bank, issuing bank. Transaction flow: 1. Grocery store clerk swipes, or inserts card from customer. 2. Device e.g. counter top POS terminal, POS system etc., sends authorization request to the processors front end network. 3. Front end network, sends request to the appropriate switch (payment brand network). 4. Switch sends request to Issuing Bank. 5. Issuing Bank approves request and sends authorization in reverse order back to grocery store. 6. At end of day grocery store performs batch settlement and all transactions are submitted to front end network. 7. Front end network sends batch file to processors back end network. 8. Back end network submits batch files to appropriate payment brand network 9. Payment brand network disperses transactions to indivdual issuing banks 10. Acquiring bank submits a file to merchants (grocery store) bank for the full amount of the settled batch (in most cases). Fees paid 1. Merchants bank account is generally debited in the first week of the following month for all fees related to each transaction as well as the merchant account itself for the preceeding month. 2. Interchange re-imbursement fees - (set by the payment brands with more than 100 different categories) example: Visa CPS Rewards 1 = 1.65% + $.10 and paid to the issuing bank. 3. Discount rate fee - (set by the processor or ISO/MSP for processing the transaction) three factors determine this rate, a) type of business b) volume c) how cards are processed e.g. swiped, hand keyed (payment channel) example: .25% 4. Authorization fee - generally $.10 but can be as high as $.35 5. Payment brand assessment + pass through fees - set and paid directly to the payment brand, example: Visa credit dues/assesments = .13% on total volume. Pass through fee example: (APF) acquirer processor fee credit = $0.0195 on all Visa transactions. 6. Additional fees that are not part of a transaction but releated to the merchant account itself include monthly fee, batch settlement fee, AVS fee etc. $100 transaction falling into Visa CPS Rewards 1 category: 1.65% + .10 + .25% + $.10 + .13% + $0.195 = $2.43 or 2.43%. Merchant retains $97.57 of original $100 sale.
William Hale (1 month ago)
Hi Craig, thank you so much for this wonderful explanation. It was very helpful. I was wondering if I could ask you for a favor. I still have some doubts/questions regarding your explanation as far as how the money flows. Would it be possible to speak with you? I would really appreciate it if I could. I have an interview with Mastercard in 2 days so it will really help me. Thank you! I can be reached at [email protected]
The Romvari Group (1 year ago)
Very helpful. Im trying to come up with a system ... that is different than the one we are currently working in.
Marco Rivera (1 year ago)
Not sure why you stole his video though
tim J Fava (2 years ago)
nice presentation, seriously look at IgniteMN we are a First Data co.
Kaye Lee (2 years ago)
Here's a link on how you determine if having a credit card is good or bad and how to manage it wiselyhttps://gum.co/vazLq Enjoy :)
arman sesar (2 years ago)
he actually left out the processor who is doing the processing not the network, and merchants bank is the one who receives the bulk of the discount rate for supplying the batch amount prior to receiving payments from numerous issuing banks, the issuing bank mainly benefits from these transactions via the interest rates which is its own separate topic.
paasu (8 months ago)
arman sesar could you explain well in terms of what's been expressed in the video as it would make more sense. So you mean visa is a part of connection but where does processor stand? Please explain in layman terms of what you know and spread the knowledge. If possible add the link where this is explained very well in writing as well. Peace !!
LEWIS ASILEVI (2 years ago)
It all makes sense now.
Mangaljit Singh (2 years ago)
Excellent explanation
Gail Cavanaugh (2 years ago)
Here's a book which may help you. It's allabout credit card processing. http://www.amazon.com/Retailers-Guide-Merchant-Services-Storefront/dp/1507819218/ref=sr_1_1?ie=UTF8&qid=1465178984&sr=8-1&keywords=Gail+Cavanaugh
se7ensnakes (2 years ago)
that book does not show how promissory notes are involved in the credit card transaction.
Bizorke (2 years ago)
So is it practical or possible to do high-volume <$1 transactions? That $0.10 (which most payment processors charge at $0.30) plus 2 to three percent really adds up for very cheap transactions.
Miguel A. Carpio D. (1 year ago)
Great! I also accept credit card payments with the www.miunic.com app, ..it works for me.
jhamoo (2 years ago)
Brilliant. Thanks Khan Academy for the great video.
Eddy He (2 years ago)
Clarify all the credit card payment system works! So helpful !
Westen9123 (2 years ago)
Perfect... Now I understand Processor/Network, Issuing bank, Acquirer and retailers... Well explained... Thanks!
Horst Seehofer (2 years ago)
Thanks for this really good video! I´ve just one question left, so according to your video it is ok to give out the credit card details (number and security code) over the phone in order to make the payment?
Saurabh Dhoble (1 year ago)
Horst Seehofer no buddy, but only if you trust your merchant, anyways all card number flows in encrypted format
stachowi (2 years ago)
+Horst Seehofer Stupid, especially if they call you. Considering you don't know who's really on the phone (company or con artist). Internet is normally unsecure (http: in the address bar instead of https:), phone connection can be hacked or tapped, but it's not as profitable as an unsecured web server (mom and pop e-commerce store). I call my local pizza shop all the time and give them my credit card number to order food.
Ivan Dokov (2 years ago)
Very informative! Thanks!
Nassim B. (2 years ago)
finally a video explaining all the hidden fees
Abubakar Rafique (3 years ago)
We provide free credit card terminal to merchants. If you want to join a successful credit card processing contact me we provide upfront bonus and residual. Cell # 347-401-8006
Sara Tironi (3 years ago)
Thanks! very useful! Sara
Jksa Dsas (3 years ago)
I just got my credit card, how does it interest work
Desi Edwin (3 years ago)
great video, thank you
Julius Karanja (3 years ago)
Awesome! Many Thanks!
Ybt Sun (3 years ago)
KA is awesome. Used it in HS, used it in college, now I'm a working person and I am curious about credit cards- I get online and KA is the first that comes up. Awesome. I want to give this guy my money. No way this service deserves to be free
james oconnell (3 years ago)
did you study some college course in particular to learn about this?
stachowi (2 years ago)
+james oconnell you learn it when you open an online business. You have to know who the players are for you to start making money (accepting payments online)... also shows why Bitcoin is so nice... me and you can exchange money within minutes anywhere in the world without any banks using bitcoin.
FlevasGR (3 years ago)
6 people with OCD saw this video... The text on a circle must never exceed the circle lines...
sultanbino (3 years ago)
it is funny and clear , thank you sooooo much
Azharuddin Syed (3 years ago)
Excellent. Thank you .
Macaroni Grille (3 years ago)
that was amazing. thank you for spending your time explaining.
Unknown (3 years ago)
Why aren't they teaching this in schools!?
KWT (3 years ago)
+Salnder Simsan I am noy Saudi. I am Kuwaiti. Anyway, thanks for what you have said. :) 
Oma Be (3 years ago)
+elmirasahar The problem is that students aren't necessary exposed with the problem so they would just find it's gibberish. A bit like how Math is seen as irrelevant by students, especially high school students with their idiotic argument "it's not really useful" . lol. But I agree with you, I wish I had that kind of education. I had an economy class at my last high school year but it covered other matters.
KWT (3 years ago)
+elmirasahar they just teach shit it schools lol
Jinxin Li (3 years ago)
Great video, thanks for the knowledge! Just one quick question though. Does this work exactly the same way with debit cards? Does the issuing bank still take such a large cut even though they would not be providing any credit in this case?
mlaygo (2 years ago)
+Álvaro Prat Hernando It depends on the debit card network. Usually, however, there is a flat rate PER TRANSACTION, no matter the amount. For example, here in Canada, Interac in general costs from $0.10 to $0.25 per transaction, whether it's a $1 or $1000 transaction. Visa Debit is one exception though. It charges a certain percentage, plus a flat rate per transaction, e.g., 0.25% + $0.05 per transaction.
Vincent Li (4 years ago)
you keep repeating simple terms, we are not retarded
Rochelle (4 years ago)
That was one heck of an explanation.. very well done. Thank you
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Charles Ramsey (4 years ago)
Loved your video. I am on the retail end of the game but if you did not take credit cards you would not have much business these days.
Robert Rivera (4 years ago)
that was boring and lost my interest in the first 2 minutes
sally sidetrack (1 year ago)
Robert quip quick Rivera l 6 quickly
Imran Minhas (4 years ago)
Thanks for putting up this video. Very informative.
HKAMARA (4 years ago)
Credit: Khan Academy (khanacademy.org). You're welcome!
Tavga Hawrame (4 years ago)
helpful video. thanks
Felix Kronabetter (4 years ago)
$100 worth of groceries in Salzburg? Not a hotspot for fraud, so: Did you visit recently? :)
Raman Rao (4 years ago)
Amazing quality and details unleashed in just 12 minutes video.Really not sure why the hits are so less
Yazin S (4 years ago)
Wow that was THE BEST explanation of the topic I have seen yet! I've seen many people mix everything (often together) so it's a nightmare to understand. Thank you so much Sal!
Mauro Bermudez Campos (4 years ago)
Hey!!! Great video, just what I was looking for and by the way great black board you use for the explanation, I will looking that App later. Just one question. Usually there are several companies that provide the "communication" service through a data phone or other device that is not the merchant bank (bank b) so for example ATH or others. Which will be the role of this companies in all this transaction process? How it get his cut of the rate? Thanks and I will appreciate if you contact me at [email protected]
Will Harding (4 years ago)
really good but what happens when it is the same situation but it's bank B's card? does it go bank b to visa back to bank b? or do they keep all of the $2 since it doesn't go to visa?
ks0100b (3 years ago)
I work for Visa and can tell you yes.  If Bank B both issued the card and acquired the transaction, Bank B, in their role as acquirer, would be required to route the transaction to Visa.  Visa would perform various processing functions then route the transaction to the issuer for a response (in this case, back to Bank B).  Bank B would make the decision to approve/decline/refer the transaction and send the response back to Visa.  Visa would log the response, perform any additional processing needed, then forward the response back to the acquirer (back to Bank B).  There are many reasons why this needs to occur  (e.g. monitoring of transaction levels, response performance, velocity checking, etc…).  There are a few exceptions, but this is not the norm.  And yes, interchange would come in to play.

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