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Five parties are involved in online credit card purchasing cycle:-
- Consumer
- Merchant
- Clearing house
- Merchant bank
- Consumer’s card issuing bank
In order to accept payments by credit card online merchants must have merchant account established with a financial institution. A merchant account is a bank account that allows companies to process credit card payments and receive funds from those transactions.
i. The online credit card transaction begins with a purchase.
ii. A consumer makes a purchase, he/she adds the item to the merchant shopping cart. A secure tunnel through the internet is created using SSL when he/she wants to pay for the items. SSL secures the session during which the credit card information is sent to the merchant and protects the information from interlopers on the internet.
iii. SSL does not authenticate either the merchant or the consumer. Both parties have to trust one another. Once the merchant gets the information, the merchant software contacts a clearing house.
iv. A clearing house is a financial intermediary that authenticates credit cards and verifies account balances. The clearinghouse contacts the issuing bank to verify the account information.
v. After verification the issuing bank credits the account of the merchant at the merchant’s bank(occurs at night in a batch process)
vi. The debit to the consumer account is transmitted to the consumer in a monthly statement
This form of payment system has several advantages, which were never available through the traditional modes of payment: privacy, integrity, compatibility, good transaction efficiency, acceptability, convenience, mobility, low financial risk and anonymity.
Kavungya answered the question on May 9, 2019 at 13:07
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