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What happens in the backend when you pay online with your credit card in Dubai UAE?

 

Do you ever wonder what happens behind the scenes when you checkout in an online store like noon or Amazon in Dubai UAE?

 

Lets Checkout the parties involved in this business and the steps-

 

1. Issuing Bank

 

As a customer wish to pay by your credit card in an online store, there should be an issuing bank, the bank that issued your credit card will be referred to as the issuing bank. 

 

2. Acquiring bank

 

Whether you physically swipe the card at a store or enter the details online, the credit card details are sent to the merchant’s bank- referred to as the acquiring bank

 

3. Authorisation

 

The data on the card is then sent from the acquiring bank to the card network company like Visa or Master card , or a mix of whichever party is involved, to know who issued this card.

 

4. Authorisation block

 

The card network company then confirms with the issuing bank, if it approves the transaction, from the customer for the specific amount. After verifying that funds are available, a hold is placed on the money. This is called authorisation block or capture or hold.

 

5. Confirmation

 

The card network company, then sends the approval to the acquiring bank. Then the acquiring company confirms the transaction for the merchant. 

 

This entire process happens in the matter of a few seconds. The two banks could be anywhere in the world. This process is called the switch where card network companies like visa or master card direct your transaction request to the right place. This is what enables you to shop online in the world using your credit card.

 

For example if you are in the UAE, let’s take a Card issued by Visa, Emirates NBD, Acquiring company is Network International and the company you shop online is Amazon.

 

You are going to purchase a mobile with your Visa ENBD credit card at Amazon.ae. At the checkout page you enter card details and press complete the order. So the NI(Network International) will capture your ENBD card details and send it to the VIsa Card. Visa will send a request to ENBD for approving the transaction amount. If you have enough balance in your card ENBD will approve the transaction. ENBD will send the approval signal to Visa Card, Visa will send the Approval signal to NI , then NI confirms the merchant that the transaction is Authorised.

 

6. Settlement

 

The next stage is settlement , all the involved parties need to then manage the final payment or ultimate transfer of funds based on the purchase this is called settlement.

At the end of each business day, when the merchant takes stock of all the transactions and it communicates to the acquiring company. Then the acquiring company sends this information to the master or visa card. Then this card network company informs the issuing bank regarding the net settlement. 

 

7. Interchange

 

If a customer purchases an item for AED 100 , at the end of the day the card company may inform the issuing bank it owes acquiring bank AED 98.6.

This difference between 100 and 98.6 is called interchange and this is the profit for the companies involved.

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