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How do credit card terminals work?

How do Merchant Services work?

Credit card terminalFrom a shopper’s point of view, and even from a shop owner’s point of view, credit card terminal operations seem totally effortless: enter transaction information, key in PIN or tap card, hand out receipt... voilà, another sale is registered without even really thinking about it.


What actually happens during this sequence of events and after that is of course more complex and explains why many credit card terminal providers double up as merchant services providers.

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Card payment processing steps include:

-        Transmitting cardholder’s information and transaction details to the retailer’s payment processors, then to his acquiring bank,

-        Transmitting transaction details to the shopper’s issuing bank,

-        Transmitting authorization between the issuing bank and acquiring bank through card issuer’s network (Visa, Mastercard, Amex...),

-        Routing the response to the authorization request to the payment terminal,

-        Sending the transaction settlement requests, typically, at the end of each business day,

-        Reconciling transactions and authorizations by Interchange,

-        Remitting funds to the shop’s merchant account through Automated Clearing House,

-        Debiting the shopper’s issuing bank’s account,

-        Transferring funds from the merchant account to the shop’s regular business account.

This all takes place within a few seconds via an Internet or phone connection.


It’s because merchant services providers supply the credit card processing machines together with these services that many businesses prefer to rent rather than buy credit card terminals.


Although these fundamental payment terminal operations basics do not change, operating a new-generation mobile credit card terminal has some interesting bonus features, as they directly integrate with the point of sale app in order to seamlessly, automatically:

-        Transfer transaction details to accounting software,

-        Manage loyalty schemes and customer experience programmes,

-        Control stock levels,

-        Monitor inventory,

-        Calculate business metrics such as margins, average basket value, employee performance, ROI...

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