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    Credit Card Processing & Payment Gateway

    From swiping your credit card at the merchant (shopping mall or a supermarket) to receiving a message which says a particular transaction has been done using your credit card, there are more than a couple of processes that take place, involving different parties, each doing their jobs to make sure the entire process happens in a matter of seconds.

    If you’re keen to know how the money, which actually doesn’t exist in your credit card, transverses through various payments gateways, processors, banks and finally reaches the merchant’s bank account, while simultaneously getting debited from your credit card account, the guide below will help you understand it better.

    You will definitely find some interesting facts about credit card processing and various parties involved in the process.

    How Credit Card Processing Works – Step by Step Guide

    Step-1: Cardholder uses the credit card to make a payment either at a point of sale (POS) terminal or at an e-commerce website.

    If it is a POS terminal, which is nothing but the cash counter at a retail store, you will find a card reader. Your card will be swiped to fetch the information. In e-commerce websites, where you cannot physically use your card, the merchant uses a payment gateway to collect the information.

    Popular payment gateways in India include PayPal, Square, Stripe, which typically manage complex routing of data on behalf of the merchant and authorise e-commerce transactions.

    Step-2: The card reader or the payment gateway then pass the transaction information through a secure connection to the payment processor

    Step-3: The payment processor, which is responsible for collecting and transmitting information to other stages, sends the payment information to credit card network with which the card is associated. The popular credit card networks are Visa, American Express and MasterCard.

    Step-4: The card network then passes the information to the customer’s bank- the bank which issued the credit card. It is also called issuing bank.

    Step-5: The issuing bank upon receiving the payment request, verifies the availability of sufficient funds in the customer’s account to process the purchase. It also checks whether the purchase is legitimate or not. Once it finds appropriate funds and verifies that the purchase is not fraudulent, it sends a message, either approved or declined, back to the credit card network.

    In case the bank finds insufficient funds in the account or the credit limit on the card has been reached or when the purchase is not legitimate, it declines the transaction.

    Step-6: The card network transmits the authorisation response to the payment processor which in turn forwards the same to the payment gateway or the card reader.

    The authorisation response will then be displayed on the card reader or on the e-commerce website. Once the transaction gets approved, the merchant will deliver the goods to the customer.

    Step-7: All the approved authorisations or credit card payments will be submitted by the merchant in a batch via its payment processor to the acquiring bank or merchant bank for settlement.

    The merchant bank processes credit card payments on behalf of the merchant. They offer a merchant account and exchange funds with the credit card issuing banks. They are responsible for depositing funds to the merchant’s account after deducting the related fees.

    Step-8: Once the merchant bank receives daily card payments from the retailer, it raises a request to the credit card issuing bank for batch settlement

    Step-9: The credit card provider then makes a settlement payment to the merchant bank on the following day

    Step-10: Once the merchant bank receives the amount it will deduct a certain amount towards interchange fee, acquirer fee and the like from the actual amount and deposit the remaining to the merchant’s account on the same day or on the following day. This process is called settlement and typically takes 2-3 business days.

    Glossary of Credit Card Processing terms

    You might have come across many new terms while trying to understand credit card processing. To make it easy for you here is a brief definition of all such terms.

    Point-of-sale (POS) terminal: A POS terminal is a physical set up at brick-and-mortar stores, which typically includes a card reader to process debit/credit card payments.

    Payment gateway: A payment gateway is a software that transmits transaction information from a payment portal such as an e-commerce website to bank’s processor and authorisation responses from the credit card issuing banks to the payment portal. It usually facilitates communication between the banks.

    Payment processor: A payment processor acts as a connection between merchants and the issuing bank. Besides securing payment data and transmitting it to other parties, it also ensures that all transactions adhere to the Payment Card Industry Data Security Standard (PCI DSS) guidelines.

    Credit card network: Credit card networks or association work with payment processors to facilitate communication between merchant and issuing bank. They are also responsible to set interchange and assessment fees.

    Visa, Master card, American Express and Discover are the popular credit card networks.

    Issuing bank: Issuing bank is a bank or financial institution that provides credit card to the customer.

    Acquiring bank: An acquiring bank is a bank or financial institution that accepts credit card transactions of a card holder. It is registered with a card network and accepts transactions on the network on behalf of merchants. Some banks also serve as processors. They provide the merchants with card readers and other equipment required to accept credit cards.

    Check Credit Card Processing Fee

    Credit card processing fee is a fee charged by payment processors to process a particular credit card transaction. The fee is typically charged to the merchant who uses the payment processing services.

    Typically set by credit card networks, the credit card processing fee varies from one service provider to another based on the card network it is associated with.

    The processing fee charged to a particular retailer also depends on various factors such as credit card processing method. If you are using a card-present processing method such as a card reader, you will be charged less compared to a card-not-present processing method such as e-commerce sites.

    Credit Card Payment Gateway

    For e-commerce sites, payments gateways are quite essential as they play a crucial role in credit card processing. By securely transmitting crucial information between issuing banks and acquiring banks, they protect the sensitive data from fraudulent parties.

    Security plays an integral role in the functioning of gateways as crucial data such as credit card numbers and PINs pass through them to various other parties. To ensure right practices, gateways follow the rules and security standards set by the card networks.

    There are a host of payment gateway providers in India including PayuMoney, CC Avenue, PayU, RazorPay, Cashfree, Paypal, EBS, Coinbase, Citrus Payments, Airpay, GoCoin, BitPay, 2Checkout, PayDollar, Lay Buy, G2APay, MasterCard Payment Gateway Services and the like.

    Payment Gateway Fee for Credit Card Processing

    The payment gateways charge a variety of fee to the online merchant. Some are fixed, some are one time and others are recurring. Let us see various fees levied by the payment gateway providers.

    • Discount fee: Discount fee or discount rate is a fee charged by the payment gateway to process a transaction. It is typically a percentage of the payment processed, hence varies from one transaction to the other. The discount rates vary from 1.5% to 3.5% depending on the type of credit card and mode of payment.

    The discount fee is typically shared between multiple parties involved in the credit card transaction including issuing bank, acquiring bank and gateway services provider.

    • One time set-up fee: This is an initial fee to be paid while signing up for a payment gateway provider. It is a single time fee and will be levied for integrating the payment gateway software within the online portal.
    • Maintenance fee: It is a pre-decided fee that needs to be paid either monthly or yearly to the service provider by the online merchant. The fee may vary depending on the services opted by the merchant. Some additional services offered by payment gateways include risk management, fraud management and other services which attract an additional fee.

    Popular Payment Gateways in India

    Mentioned below are five popular payment gateway providers in India.

    1. CCAvenue: CCAvenue is one of the oldest and largest payment gateways providing end-to-end e-commerce solutions to merchants across industries. It offers more than 200 payment options supporting more than 50 net banking, 98 debit cards, 48 banks IMPS, 16 prepaid instruments, seven credit cards and ATM cards. It is being used by most popular e-commerce sites such as Snapdeal.
    2. Other features offered by the provider include multiple currency processing, iFrame integration, smart dynamic routing and mobile payments.

      Below are the charges levied by CCAvenue:

      Discount fee

      Transaction type Discount rate
      All domestic MasterCard & Visa credit cards, debit cards, net banking, cash cards, wallets, IMPS and EMI options 2%
      International MasterCard & Visa credit cards, American Express / Amex EMI, JCB & Diners Club cards 3%
      Multi-currency options 4.99%

      Set up fee

      Package Set up fee
      Startup Pro Nil
      Privilege Rs.30,000

      Maintenance fee

      Fee type Amount
      Annual software upgradation charges (ASUC) Rs.1,200

      The charges are applicable on 1st April of every year. New customers can enjoy a one year fee waiver.

    3. PayU India: Owned by internet and media conglomerate Naspers group, PayU India is another popular payment gateway provider in India. In 2015, the company rebranded its product into two different products, PayU Enterprise and PayUmoney, to provide better services.
    4. While PayU Enterprise or PayUbiz provides services for large enterprises, PayUmoney is for small and medium enterprises. The latter also offers wallet solutions for mobile users.

      PayUbiz offers a variety of payment options including Visa, Master, Amex, Diners, Maestro, Rupay cards, more than 45 net banking sites, EMI options, and mobile wallets. It accepts international cards and also offers multi-currency services supporting up to 13 currencies.

      Mentioned below are various plans offered by the provider and their respective rates.

      Discount fee

      Transaction type Discount rate
      Start-up plan Silver plan Gold plan Platinum plan
      Net banking and credit cards 2.95% 2.70% 2.50% 2.25%
      VISA, MasterCard, Maestro, and RuPay Debit Cards 0.75 to 1%
      American express cards and cash cards 3.7% 3.45% 3.25% 3.0%
      Wallets 2.95% 2.70% 2.50% 2.25%
      International credit cards NA NA 3.25%+Rs.6 3%+Rs.6
      Bank’s EMI options NA NA 3.25% 3.0%

      Set up fee or integration fee

      Package Set up fee
      Start-up plan Rs.4,900
      Silver plan Rs.9,900
      Gold plan Rs.14,900
      Platinum plan Rs.19,900

      Maintenance fee

      Fee type Amount
      Annual maintenance charges (AMC) Rs.2,400
    5. Razorpay: Razorpay offers a comprehensive product suite that enables businesses to accept, process and disburse payments. It supports all payment modes including credit and debit cards, mobile wallets and internet banking.
    6. The pricing chart of Razorpay is as follows

      Transaction fee or discount rate

      Transaction type Discount rate (per transaction)
      Domestic MasterCard & Visa credit cards, debit cards, net banking, wallets and UPI 2%
      Diners and American Express Cards, International Cards, EMI option 3%

      Set-up fee – Nil

      Annual maintenance fee – Nil

      The fee and charges are applicable only to the Standard Plan offered by Razorpay. It is specially designed for start-up companies, small and medium sized businesses.

      Razorpay also offers an Enterprise plan, designed for enterprises that process large volumes. It offers a customer pricing for the businesses opting for the plan.

    7. E-Billing Solutions (EBS): Wholly-owned Ingenico Group, EBS or E-billing solutions is one of the most secured payment gateway providers in India. It supports more than 100 payment options including credit and debit cards, net banking, prepaid cards, mobile wallets, bank EMIs and the like.
    8. It offers smart routing technology, which uses a proprietary algorithm to dynamically switch transactions to achieve high success rate.

      The pricing plans offered by EBS are as follows

      Transaction Rates or Discount Rate

      Transaction type Discount rate
      MasterCard & Visa credit and debit cards, net banking, EMI on credit card, IMPS/UPI 2%
      American Express, JCB, Diners, Wallets, Cash Cards, and ezeClick 3%

      Set-up fee – Nil

      Annual maintenance – Applicable

      The prices are applicable only for Starter pack. EBS also offers Premium pack which allows customers to customise a plan based on their business needs.

      1. Instamojo: Instamojo is another multi-channel payment gateway in India. It offers various features such as easy interface, dispute resolution centre, digital files hosting, easy sharing options and many more.

      The pricing chart of Instamojo is as follows

      Transaction rates or discount rate

      Transaction type Discount rate
      MasterCard & Visa, RuPay, Maestro debit and credit cards, net banking, wallets and UPI 2%
      Digital products & files including file hosting & download 5%

      Set-up fee – Nil

      Annual maintenance – Nil

      Payment Gateway – Price Comparison

      To make it easy for you, here is a price comparison among the popular payment gateways. Please note that the pricing is as per the standard or the basic packages offered by the companies.

      Payment gateway Set-up fee Discount fee (per transaction) Annual maintenance fee
      CCAvenue Nil (Basic pack) 2-3% Rs.1,200
      PayU India Rs.4,900 0.75% – 3.7% Rs.2,400
      Razorpay Nil 2%-3% Nil
      EBS Nil 2%-3% Applicable
      Instamojo Nil 2%-5% Nil

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