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October 28, 2017
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The MasterCard Payment Process behind the Scenes

What Is MasterCard Payment Processing?

You have swiped your card too many times to keep count and enjoyed the benefit of receiving goods and services in return. Have you ever asked yourself what happens behind the scenes while you wait for your transaction to be approved? Using your MasterCard is quick, but the process can be quite complicated. In addition to MasterCard, there are four players involved in each transaction, which must go through six unique steps every time.

The Players

When you use your card at the store or online, you may assume that it’s just between you and the merchant because that’s what’s visible to you. You are purchasing goods or services in exchange for payment with your card. In reality, each transaction involves four different parties in addition to MasterCard:

  • Acquirer
  • Issuer
  • Merchant
  • Cardholder

An acquirer is a financial institution that connects the merchant to MasterCard. The acquirer takes care of processing the payment and fulfilling the obligations set by MasterCard. The merchant chooses which acquirer to do business with. The merchant’s selection criteria may include the fees charged by the acquirer and the additional services they provide to the merchant. For example, processing fees are lower for a card that’s swiped at your store’s terminal, but an online transaction has higher fees because the card’s credentials must be verified without the card being physically present.

The issuer is the institution that provides the line of credit to the cardholder, which can be a consumer or a business. The issuer can be a bank, a credit union, or a government entity. The cardholder has many options to choose from, much like the merchant. They may also select the issuer based on the fees they charge and the perks they offer for doing business with them.

The Process

When someone uses a MasterCard, the transaction involves a six-step process. This process is the same for debit cards and credit cards. When customers use a prepaid card, there is no financial institution involved, but the balance on the card still has to be verified before the transaction can go through.

  1. The customer uses the card to make a payment.
  2. The merchant verifies the card by sending the cardholder’s account information to the acquirer.
  3. The merchant submits the transaction to MasterCard requesting authorization for payment.
  4. MasterCard requests authorization from the issuer, which is the cardholder’s financial institution.
  5. The bank that issues the card authorizes the transaction.
  6. The merchant gets paid when the bank routes the payment to the acquirer and deposits it into the merchant’s account.

The transaction can happen at a physical location, like a retail store or ATM. It can also be processed online or through another service. Transactions can even be processed on a subscription basis, where the customer agrees to be charged for an ongoing service, such as cable TV.

When the Transaction Fails

Sometimes a transaction won’t go through for one reason or another. If the card can’t be charged, then the issuing bank sends a message in code, explaining why the transaction was declined. The reason could be an insufficient account balance, a card that has reached its limit, or a lost or stolen card. When the merchant is unable to process the payment, the cardholder must contact the institution that issued the card to find out why and remedy the situation. Alternatively, the cardholder can use another form of payment to obtain products or services from the merchant.

What Is MasterCard’s Role?

MasterCard is neither an acquirer nor an issuer. It simply provides the technology and the network that powers these credit and debit card transactions. MasterCard allows you to adapt your transaction by providing two different processing structures – distributed and centralized processing. Which of these processing structures are more useful for you depends on your setup.

Distributed processing is used to conduct faster transactions. To authorize payment, the card needs to be swiped or inserted into a card reader, but it often doesn’t require additional verification, such as a PIN number or signature. This process is often used for toll booths or vending machines.

The centralized processing structure offers advanced services for each transaction. The transaction data is accessed in real time to prevent fraud. This method is especially useful for online transactions when the cardholder and card are not at the same physical location as the merchant.

Using Prepaid MasterCard to Streamline Your Business

MasterCard is an accepted payment method all around the world. You can streamline payments to customers, employees, contractors, and affiliates by issuing a prepaid MasterCard. It’s easy to transfer money to these cards without having to worry about currency conversions. The chip and PIN number allow the cardholder to make secure payments. These prepaid cards can even be used as bitcoin funding debit cards, making it easy to convert cryptocurrencies to a payment method that’s accepted everywhere.

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