What is the function of a credit card processing company? And What connection does it have with banks?

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1. Yes, they are an independent company separate from the bank, and they provide a number of services to banks.

   Consider you have just set up a small bank, and you want to issue (for example) Visa cards. There’s a lot processes and infrastructure you would need to set up, and the processor can provide one (or all) of these services on your behalf if you choose to engage them:

   – Card production: Printing and embossing the cards, and performing the cryptography to generate and mail the PIN numbers.

   – Authorization: Providing computing services to authorize transactions against a credit limit.

   – Fraud detection: Providing computing services to check incoming transactions against likely fraud (i.e. a transaction comes from Russia, but you did one in Atlanta two hours ago)

   – Connection to networks: The authorization system has to be certified and connected to Visa and/or MasterCard

   – Settlement: Clearing the transactions after authorization

   – Chargeback: Managing the arbitration of dispute cases when a customer says he didn’t perform a transaction, or disputes the amount

   In addition, the processing companies provide the same services for issuing branded credit cards which aren’t associated with a bank – for example, a football team or an airline.

   Griffin | Dec 30, 2009 | Reply

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