Case Study of the Credit Card Processing Industry - Term Paper Example

The credit card processing industry has been in the forefront in adopting new technology. Credit card processing is mainly done through electronic processing. The credit card associations and companies have laid down policies and procedures for credit card processing. The system of processing credit cards is very complex as it involves processing transactions hypothetically throughout the payment process system. Usual credit card transaction in involve the following participants: the customer, merchants, payment gateway, acquiring banks processor, credit card interchange, customer’s credit card issuer, and merchant acquiring bank.

The settlement for the credit card interchange institutions is done electronically. The computerized transaction settlement systems are used to make payments to the credit card interchange institutions. Today, the main credit card interchanges include MasterCard and Visa .MasterCard and Visa have agents all over the world that persuade merchants to accept transactions using their cards. When a customer makes a purchase at the point of sale, the merchant forwards the transaction at the end of the day to the merchant’s bank.

The merchant’s bank pays the merchant for the purchase after deducting a fixed fee before forwarding the purchase to MasterCard or Visa. After receiving the transaction money, MasterCard or Visa forwards the transaction charge to the credit card issuer. The credit card issuer then makes payment of a fixed fee to MasterCard or Visa. MasterCard or Visa then makes payment to the merchant bank. MasterCard or Visa collects fees for both the card issuer and the merchant bank. Then the issuer of the card charges the customer for the amount of purchases made.

The card holder finally pays the bank a minimum amount at an interest or pays the whole amount. The credit card processing system uses point of sale electronic authorization, which has replaced the traditional paper work and telephone costs. The electronic data capture used in credit card transaction today has helped the banks to process and accept transactions much faster. The retail systems in the supermarkets and major hotels have been changed in order to fit the changing needs of using credit cards.

The main advantage of using a credit card for the customer is that it is convenient. One disadvantage is that the customer is most likely to fall into a debt that will not be easy to get out of. The whole of the credit card processing system is based on trust. Today, the credit card processing industry has been marred with fraud. The credit card processors have come up with tools to help merchants to identify fraud. These tools are web based and used by merchants to avoid scam. Model relationships capture system for the transactions will affect the customer’s loyalty of using credit cards.

The model relationship capture is used to determine risk of issuing a credit card in the future. The credit card scoring points will assess the future business opportunity. The economic crisis has hit the credit card industry so hard that many customers are opting not to use credit cards. Many credit card holders have submerged in the credit card debts and are opting to use debit cards instead of credit cards. Following these dwindling fortunes, the credit card processing industry has to improve their operations in order to maintain customers in the future .The