Understanding Credit Card usage is crucial in digital transactions. Credit Card swipe charges are costs incurred each time a transaction is made. The card network determines these charges, forming a critical payment system component. Every bank mentions the Credit Card application terms, fees, and spending limits.
It covers various operational costs, which include fraud prevention, transaction processing, and maintenance of the payment infrastructure. This facilitates smooth and secure transactions between merchants, banks, and customers.
Credit Card payment process
The Credit Card payment process involves several components. Each of them plays a distinct role in ensuring smooth and secure transactions, such as:
1. Payment gateway
The payment gateway is a digital portal that facilitates transferring transaction details from the merchant to the acquiring bank. It also acts as a bridge that encrypts and securely transmits the data required to process the payment.
2. Payment processor
This third-party service manages the complicated process of transferring transaction information across various networks. It verifies them, ensures funds are available, and communicates approvals or denials to the merchant.
3. Credit Card network
Visa, Mastercard, and other networks are central to the Credit Card system for establishing the swipe charges integral to the economics of such transactions. They set the rules for transaction processing while facilitating communication between the issuing and acquiring banks.
4. Issuing bank
The bank that has already issued the Credit Card to the customer is responsible for paying the acquiring bank on their behalf and later collecting the payment from them. If the payment gets delayed, you need to pay higher Credit Card interest rates to the issuing bank.
5. Acquiring bank
It refers to the bank that holds a Merchant Account and receives authorisation from the payment processor. The acquiring bank credits the Merchant Account with the transaction amount, excluding the swipe charges, and debits the same from the issuing bank. These elements are crucial to understanding how swipe charges are integrated into the process.
Each party involved ensures transaction efficiency, security, and the provision of various services, for which they compensate the swipe charges.
How are swipe charges applied?
When you swipe your Credit Card at a Point-of-Sale machine, the merchant POS terminal reads your card information. The information passes through the payment gateway and processor to the Credit Card network. The issuing bank verifies the transaction and communicates approval or denial through the network.
Merchants bear the Credit Card swipe charges, which cost about 2% of the transaction value for physical transactions and 2.3% to 2.5% for online transactions. The RBI regulates these charges to ensure fairness and transparency. While merchants pay for swipe charges directly, they can indirectly affect customers who Credit Card apply.
Some might increase their product or service prices to offset these fees, leading to a marginal increase in customers’ overall cost.
Conclusion
Understanding swipe charges is important for any Credit Card user. Making online payments is convenient and often attracts lower charges.
