Guide: What Happens When You Swipe Your Credit/Debit Card


The most popular form of payment these days are credit and debit cards. They have become so popular that they have become something that is an inevitable part of our day to day lives. They help people to pay for services and products easily and hassle-free.

Since they are used as an alternative to cash and cheque, and also made up of plastic, they are also known as plastic money. The Latin meaning of the word credit is ‘trust’. When you are selling something to a person and provide them time to pay, you have to trust them to pay you back.

But what really happens when you swipe your card at the credit card swiper? How do they work?

How Credit Cards Work

Before we get deep into the technical details, here is an example for you to understand this clearly. If Trevor is a credit card user and, let’s say he wants to buy a Sony LED TV. He has a credit card from Bank A. And the Sony Store has a credit card swiper that is provided by Bank B.

In this scenario, Trevor is the cardholder, A Bank is the card issuer, Sony Store is the merchant, B Bank is the acquirer and Visa/Mastercard is the credit card association.

Step 1

When the merchant, Sony Store swipes Trevor’s credit card, the credit card swiper dials a pre-stored telephone number, with a help of a modem in order to call the acquirer bank. This call contains details of the purchase that Trevor is about to make. The details include the name of the cardholder, card number and expiry date, and the amount of money that is involved in the purchase.

Step 2

Now B bank calls A bank via the Visa or the Mastercard network. Here the validity and the credit limit for the user. Now the A bank rejects or approves the transaction.

If the card is expired or if the user is not allowed to make transactions anymore then it can get rejected. If A bank approves the transaction, then a receipt is printed by the B bank credit card swiper.

Step 3

You might think that everything is now over. But actually, it is not. The merchant has to keep track of all the receipts and then submit them to the B bank.

Now here’s the tricky part—Every bank has its own merchant discount fee. If Trevor is buying the TV for 400$, he has to pay a small fee to B bank for example 16$. This is one of the main reasons why merchants ask customers to pay extra if they are using their card to make purchases.

Step 4

Now B bank sends all the required transaction details to A bank. This takes place with the help of the Mastercard or Visa interchange.  A bank pays the amount to the B bank, after deducting the fee that is charged for the transaction to take place. This fee is known as the interchange transaction fee. This is a fee that is paid by the acquirer. Which is in our example B bank to the A bank. Usually, most of the banks have it at 1%.

Step 5

After this, A bank sends a statement to Trevor to pay 400$. Now Trevor has to repay 400$ to A bank.

Why People Use Credit Cards?

When the merchant is the one that has to pay extra when a customer swipes a credit card, then why use it?

These days people find it uncomfortable to carry large amounts of money in their wallet or purse. Some might carry only cards because they feel that it is one of the safest ways in which you can carry cash. So by installing a credit card machine in his store, a merchant is selling more products than he usually would have, if he didn’t have the machine.

By introducing a lot of payment options a merchant is attracting a lot of customers to his store. At this point, you might wonder why people can’t use cheques. A merchant can accept cheques but he can’t be sure if the person has such amount in his bank account. By accepting a credit card, a merchant can be sure that he is going to get his money.

It is thus accepted by merchants and customers worldwide, that using a credit card or a debit card to make purchases is one of the safest methods.

Shopify is one of the best e-commerce development programs that are available today. They also offer a large number of tools that can be used by retail stores as well. Get a credit card swiper from Shopify for your business, and then accept payments seamlessly without any hassles.