Credit Card Payment Agreement With Financial Institution Payment Service
The credit card is a global system of payment, allowing a credit card holder (the customer) to shop for goods and services by not paying cash but using the “credit” available on the card.
In a typical credit card process, the following parties are involved:
- the cardholder
- the merchant
- the financial institution
All the parties get benefit from the credit card process as follows:
- the cardholder – gets to shop using credit facilities
- the merchant – gets commission from the cardholder and also gets to sell the goods and services
- the financial institution gets fees from both merchant and cardholder
Technology has ensured that credit card transactions are matured, quick and easy, but behind the scenes are a whole lot of complex systems that ensure efficiency, security and accuracy. The Credit Card Payment Agreement with Financial Institution Payment Service is one such complex process which guarantees payment all the way – from the cardholder to the merchant, and also from the merchant to the financial institution.
The Credit Card Payment Agreement with Financial Institution Payment Service typically covers three parties viz. the cardholder, the merchant and the financial institution (s). In special cases where online payments are accepted (called e-commerce payments), additional parties get involved for e.g.: the payment gateway provider, an e-commerce payment intermediary and additional financial institutions. The financial institution referred here can be either banks or credit card issuers.
For the merchant, the origin of the business is a contract (also called agreement). Any business wanting to receive credit card payments from their customers’ needs a contract with a financial institution. The financial institution will be called acquiring bank, which will accept payments on behalf of the merchant’s business and transfers to the merchant’s bank account. This arrangement creates a merchant account. This is the core of the Credit Card Payment Agreement with Financial Institution Payment Service.
Another type of Payment arrangement comes into effect when the merchant accepts online payments (called e-Payments). In this case there is an intermediary called the payment service provider which uses a gateway called ecommerce gateway to accept transactions from the merchant. The payment gateway can be owned by the card issuer financial institution or it could be a separate business entity. If the payment gateway is owned by a separate entity, this entity links to the payment system using the cardholder’s data. In this scenario, the Credit Card Payment Agreement with Financial Institution Payment Service links six parties – cardholder, merchant, payment gateway, payment service provider and financial institution.
For any merchant that wants to receive credit card payments, there is a cost involved. Similar costs are involved for all parties. All these costs are routed through the Credit Card Payment Agreement with Financial Institutions Payment Service. The costs can be as follows: service fee, license fee (card-issuing banks and acquiring banks), setup fee, statement fee, interchange fee, acquirer fee, gateway transaction fee and chargeback fee.
Credit Card payments are reversible – which means a customer may cancel a payment, or a transaction is reversed due to inaccuracy, duplication and other reasons etc. This happens very often. All these reverse transactions are also included in the Credit Card Payment Agreement with Financial Institution Payment Service.
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