You might not know it, but every time you buy something with a credit card, a small portion of what you pay goes not to the merchant you’re buying from, but to the intermediaries who make credit card transactions possible. These fees aren’t visible to you like annual fees and late fees are, but you still pay them. You might also benefit from them, as these fees are what make credit card rewards possible.
Here’s how it works: When you use your credit card at a store or online, the transaction isn’t just between you and the merchant. It also involves three other parties:
• The bank that issued your credit card (called the issuer).
• The merchant’s bank (called the acquirer).
• The payment network that handles the transaction, such as Visa or MasterCard.
After you swipe your card, or enter the number online, the payment network asks your issuer some questions: Is this card authentic? Is your credit limit high enough for this purchase? Does this purchase match up with your past spending behavior? This happens electronically while your card is “authorizing.”
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Posted by Arnaldo Rodgers on 10:04 am, With 0 Reads, Filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.