Edited By: Deborah Whitman
Until I started doing research for this report, I never thought about what was involved in making a credit card purchase. Most of us use credit cards frequently. We charge our meals when dining out, pay for our gas at the pump, and purchase large, and sometimes small, retail ticket items with our credit cards. But we never think, or even care, about the process running in the background that lets us make these purchases. What actually happens when the merchant runs our credit card through their Point of Sale terminal? Who is actually authorizing the charge payment? What did the merchant need to do to be able to handle credit card transactions?
My original intention was to show how credit card payments take place over the Internet. A major portion of this paper does focus on the payment methods for online credit card transactions both currently in place and in the process of being developed. The online payment portion of this paper focuses on the payment methods developed by First Virtual and CyberCash, and the proposed SET standard from MasterCard and Visa. However, it was suggested to me by my research advisorBrad Cox Ph.D., that by only researching the Internet payment protocols, I was missing a big part of the overall picture. These payment protocols handle getting credit card payment data from the buyer to the acquiring bank which will processes the transaction for the merchant. They do not dictate how the acquiring banks handle a credit card transaction, nor do they describe the relationship the merchant needs to have with the acquiring bank to process the transaction. This information is needed to have a complete picture of how credit card transactions work, both in the real world and online. Therefore I expanded my research to include all the steps in a credit card transaction, not just what takes place over the Internet.
I have broken this document into two main sections: an overview of the credit card industry, and a discussion on credit card transactions that take place over the Internet. The overview section examines credit card industry terminology, the process involved in becoming a credit card accepting merchant, and a quick overview of the events involved during a typical credit card transaction. The Internet transaction section reviews several methods for performing credit card transactions online. A breakdown of the events surrounding a transaction is included with each of the major online payment methods.
Since this document is written for viewing on the WWW, I have decided to use the conventions of the medium. For the most part, references within this document appear as links to the actual site that the information came from. I revert to customary referencing when citing non-WWW based sources. A bibliography of all sources appears at the end of this report.
