Ever wonder why most people say that credit card use can never be a substitute to cash? Well there's a huge difference between making a transaction using a credit card and using hard money.
Credit cards use, as the name implies, follow the buy now pay later idea of transaction. Therefore if you purchase an item using your credit card, after you get your items and leave the store, you actually still have not yet paid for the things you got. When you use cash instead, after you give your payment and the merchant gives you back your change the transaction is complete.
2.9 trillion Transactions in the United State last year involved the use of credit cards and these transactions were made possible by the coordination of multiple speed computer networks.
When you go out to make some purchases and opted to pay through your credit card the merchant will swipe your credit card. By doing so your card number and the amount of what you purchased together with the merchant's ID will be electronically sent over to credit card processor's computer network. From here, the said information will go to the credit card computer network or the bank or provider who issued the card. Part of the electronic transaction is the checking and verifying of your credit card computer network if you are entitled with sufficient credit to get the product you purchased.
If you are capable of getting that purchased based on your credit limit, your bank will send an authorization to the merchant. After this electronic transaction, you actually have not paid yet. The charging if amounts will not be processed yet until the end of the day wherein through your merchant's credit card processor, charges will be sent to the credit card networks for the payment to be prepared. The banks will debit your account and from the Federal Reserve Bank's Automated Clearing House payment to the merchant's credit card processor will be made. By this time the transaction is complete.
Although it may appear to be so easy when we just try to look at it but the process of electronic transaction really is a rigorous one.
Well that is card swiping and there is still something you need to know about what mere card swiping can do. Swiping is not free there is a corresponding fee for it. First we have interchange fee which the credit card company charges and the second we have the transaction fee charged by the companies or banks that are processing your transactions.
According to the National Retail Federation in 2008 credit card companies earned as high as $48 billion in swipe fees alone. This is a huge amount considering that almost all of it fall under pure profit.