6.2. Payment Methods
What happens when you go to your favorite brick-and-mortar bookstore GreatBooks and use your credit card to pay for the books you want to buy? We illustrate the process with the help of Fig. 6.1. Suppose you want to use your Visa credit card issued by MyCityBank (the issuer bank). You go to the register, remove your plastic credit card from your leather wallet, and give it to the cashier. She swipes the card through the card reader at the POS (Point-of-Sale) terminal and enters the amount of the transaction (say $52.00) and hits ENTER. This starts an authorization request which is sent to the Card Processing Center. The authorization request includes the issuer bank ID, the credit card number, and the transaction amount. The Card Processing Center contacts MyCitybank through the Bank Interchange Network and sends the authorization request. MyCitiBank checks your open-to-buy availability, i.e., the amount of money you are currently authorized to spend on your credit card. If this amount is at least equal to the $52.00 required for you to buy the books, the open-to-buy amount is reduced by $52.00 and an authorization code is sent back to the Card Processing Center, which sends it back to GreatBooks bookstore. This debit from your account is temporary and becomes permanent when settlement, as described next, takes place.
Figure 6.1. Authorization Process for Payments with Credit Cards.
The POS terminal generates a record, called a capture record, for every authorization. The merchant collects several capture records and places them in a batch settlement file. Capture records in a batch settlement file contain transactions that may be associated with many different issuer banks for that credit card brand. GreatBooks bookstore sends batch files to the Credit Card Processing Service (see Fig. 6.2). The Credit Card Processing Service sorts the batch settlement file by bank identification number and sends a portion of the batch to each of the issuer banks. Let us take a look at what happens at MyCityBank for example. MyCityBank will transform the temporary debit into a permanent one that will appear in the credit card statement for all transactions that you and others generated in that settlement file for MyCityBank. In the process of doing this, it will compute the total amount of these transactions (say $1,500.00) and generate a wire transfer to the bank that GreatBooks selected to be its acquirer bank for Visa (MyStoreBank in the example of Fig. 6.2).
Figure 6.2. Settlement Process for Payments with Credit Cards.
Next section discusses how payments with credit cards can be securely carried out over the Internet using the Secure Electronic Transaction (SET) protocol. Section 6.5 discusses other payment service options for e-business.