By Gaurav Shekhar – Linkedin profile

How Credit Cards Move Your Money : A credit card transaction is a quick, multi-step process that allows you to purchase goods or services using borrowed funds from a bank or issuer.

Here’s how it works in brief:
When you use your credit card, the merchant sends your card details (card number, amount) to a payment processor. This information is routed through a card network (e.g., Visa, Mastercard) to your issuing bank, which checks your available credit and approves or declines the transaction. If approved, an authorization code is sent back, and the merchant completes the sale.
Later, the merchant’s acquiring bank collects the transaction data and requests funds from the card network, which debits the issuing bank and credits the acquiring bank (minus fees). The issuing bank adds the amount to your credit card balance, and you receive a monthly statement to repay, with interest if unpaid. The merchant gets the funds within 1-2 days, minus processing fees.

Key Players:

• Cardholder: You, the person using the credit card.
• Merchant: The business accepting the card.
• Acquiring Bank: The merchant’s bank that processes card payments.
• Card Network: Visa, Mastercard, etc., that facilitates communication between banks.
• Issuing Bank: Your bank that issues the card and lends you the money.
• Payment Processor: A third-party service (e.g., Stripe, PayPal) that handles transaction routing.

Acquirers must be licensed by a financial regulator and card schemes. They must also follow the security standards laid out by the Payment Card Industry Data Security Standards Council.

Acquirers charge various fees, including: Transaction fees, Setup fees, Monthly fees, and Hidden fees.

Elavon: An acquirer that acts as an intermediary between merchants and card payment networks

Risk Management

Card networks also help manage fraud risk and implement security measures for credit card payments.

Identifying Card Issuers

The first 4-6 digits of a credit card number, known as the Bank Identification Number (BIN), indicate the financial institution that issued the card. This allows merchants and payment processors to quickly identify the card issuer and route the transaction appropriately.

BIN Ranges and Card Networks

BIN ranges are assigned to card networks like Visa, Mastercard, American Express, and Discover, allowing them to be easily identified. For example, Visa BINs typically start with 4, while Mastercard BINs start with 51-55. This allows for efficient routing of transactions within the payment network.

Analyzing Transaction Data

Businesses can use BIN information to gain insights into customer behavior, identify fraud patterns, and streamline their payment processing. By analyzing the BINs of their transactions, businesses can identify geographic trends, preferred card types, and potential fraud indicators. This data can be used to optimize marketing campaigns, improve risk management, and enhance the overall customer experience.

BINs and Fraud Detection

BIN data plays a crucial role in fraud detection and prevention. Unusual transaction patterns associated with specific BINs can trigger alerts and help identify potentially fraudulent activity. This allows for proactive measures to protect both the merchant and the customer.

Data Security and Compliance

Proper handling of BIN data is crucial for maintaining data security and compliance with regulations such as PCI DSS. Businesses must ensure that BIN information is stored and processed securely to prevent unauthorized access and protect sensitive customer data.

The Bank Identification Number (BIN) is a crucial piece of information found on credit cards. This 6-8 digit number is typically embossed or printed on the front or back of the card, and it helps identify the issuing bank and payment network. By locating the BIN, you can gain valuable insights into the card’s origins and use that data to streamline payment processing and enhance fraud detection. Understanding the BIN allows for efficient routing of transactions and can aid in risk management.

For example, a Visa card may have a BIN starting with 4, while a Mastercard could have a BIN beginning with 51-55. American Express BINs typically start with 34 or 37. Discover cards often begin with 6011 or 644-649. This allows merchants and payment processors to quickly route the transaction through the appropriate channels. Analyzing BIN data can also uncover geographic trends, customer preferences, and potential fraud patterns, leading to better marketing strategies and improved customer service. It can help identify high-risk transactions and prevent fraud.

There are several ways to find a credit card’s BIN. You can look for it directly on the card itself, typically near the card number. Alternatively, you can use online BIN lookup tools, which often require inputting the entire card number (though you only need to input the first few digits to get the BIN information). Be aware of data security and privacy when using such tools, and always use trusted sources.

Find BIN Ranges : https://bincheck.io/us/u.s.-bank,-n.a./visa

Here’s a hypothetical example of the different digits that make up a card number: 4021 2411 2222 3333

In this example, 402124 is the six-digit BIN. The first digit is the MII (Major Industry Identifier), indicating the industry of the card issuer. In this case, 4 appearing as the first digit means the card issuer is in the banking and financial industry. The remaining five digits of the BIN tell us the card is tied to the Visa payment network and is issued by US Bank.

The first nine digits following the BIN represent the account number. The final digit is known as a check digit or checksum, which verifies the card number has been accurately used in a transaction

Secure Transactions

Tokenization replaces sensitive payment data with non-sensitive stand-ins, known as tokens. This substitution protects cardholder data during transmission and storage, significantly reducing the risk of fraud and data breaches. The tokens are essentially unique identifiers that represent the actual payment information. If a token is compromised, only that token is affected, not the underlying card details. Luhn Algorithm used in tokenization process – https://en.wikipedia.org/wiki/Luhn_algorithm

Enabling Payments

Tokens streamline payment processing by acting as intermediaries between the customer and the payment gateway. They allow transactions to occur across various systems and platforms, whether online, in-app, or in-store, without exposing sensitive data at any point. This interoperability is crucial for modern e-commerce and omnichannel payment strategies. The use of tokens simplifies integration and allows businesses to accept payments from different payment providers more easily.

Improved Security

The primary benefit of tokenization is its enhanced security. If a token is stolen or compromised, it can be easily revoked or replaced, minimizing the impact on the original payment credentials. This mitigates the risks associated with data breaches and reduces the likelihood of fraudulent transactions. Moreover, tokenization complies with industry security standards like PCI DSS, ensuring businesses remain compliant with regulations and protect their customers’ data.