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E-Commerce

How a typical process works

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Every time an E-Commerce credit card purchase is made over the Internet, an electronic process takes place to execute the financial transaction.

The parties involved in the process are:

  1. the consumer or credit card holder
  2. the merchant who is offering products or services for sale
  3. the merchant bank that has contracted with the merchant to enable the merchant to accept credit cards over the Internet
  4. the company that processes credit card payments for the merchant bank, known as the acquiring processor.
    (The acquiring processor processes merchantsí credit card transactions through the financial network on behalf of merchant banks.)
  5. the issuing bank that has issued the consumerís bank card.

Click here for an animated processs flow

Diagram 1 shows the authorization stage

The process flow would be something like this :

When the consumer decides to buy a product or service, the merchantís commerce application prompts the consumer for credit card information together with other information such as bill to address and a shipping address.

The consumer enters payment information into a form secured by the Secure Sockets Layer (SSL) protocol. With the secured form, the payment information is encrypted by the SSL protocol as it is sent over the Internet to the merchant.

Using the payment software incorporated in the merchant's Web server, the merchant sends the encrypted transaction to the acquiring processor for authorization. The authorization is a request to hold funds for purchase. If the merchant uses an Internet gateway "service" (as shown in diagram #1) the transaction will be encrypted while in transit to the Internet gateway.

The issuing bank either authorizes a certain amount of money (and issues an authorization code) or declines the transaction. An authorization reduces the available credit limit but does not actually put a charge on the customerís bill or move money to the merchant. This message is transported to the issuing bank and back to the merchant, by the acquiring processor.

If the transaction is authorized, a "capture" is the next step. The capture takes the information from the successful authorization and charges the authorized amount of money to the consumerís credit card. In line with bank card (Visaģ/MasterCardģ) association rules, the merchant is not allowed to capture transactions until the ordered goods can be shipped, so there may be a time lag between the authorization and the capture.

If the consumer returns goods after the transaction has been captured, a "credit" is generated.

The final step is to "settle" the transaction between the merchant and the acquiring processor. Captures and credits usually accumulate into a "batch" and are settled as a group. When a batch is submitted, the merchantís payment-enabled Web server connects with the acquiring processor to finalize the transactions, subsequently monies will be transferred to the merchant bank account.

Diagram 2 shows the final or settlement stage


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