May 2021

Accepting payments almost certainly means processing credit cards. But how much do you know about the process after your customer clicks the ‘pay’ button? The payment is routed through many systems in the milliseconds that follow. If it is successful, the customer can go about their business, but if it isn’t, it can be frustrating for everybody.

The more you know about credit card processing, the more control you have over its outcome.

Key Players

Cardholder

A bank cardholder obtains a credit or debit card from a card issuing bank. They then present the card to a merchant to pay for goods or services.

Issuing Bank (Cardholder Bank)

An issuing bank issues credit cards to consumers. The issuing bank is also a member of payment card associations such as Visa and MasterCard card. They transfer funds to the acquiring banks for purchases that their cardholders make. Afterwards, the cardholder is responsible for repaying their issuing bank according to the agreement they signed.

Card Associations (Visa and MasterCard)

Visa and MasterCard aren’t banks. Instead, they function as the governing body of a community of financial institutions, ISOs and MSPs that work together in association to support credit card processing and electronic payments.

Merchant

Merchants are businesses that maintain merchant accounts that allow customers to pay them with credit or debit cards for goods or services provided.

Acquiring Bank (Merchant’s Bank)

Often referred to as a merchant bank, acquiring banks contract with merchants to create and maintain accounts (called merchant accounts) that allow the business to accept credit and debit cards. Acquiring banks provide merchants with equipment and software necessary for accepting credit cards as well as handling customer service concerns regarding card acceptance. They also deposit funds from credit card sales into a merchant’s account.

To conduct and monitor the day-to-day activities of their merchant accounts, acquiring banks often enlist the help of third-party independent sales organizations (ISO) and membership service providers (MSP).

How Does Credit Card Processing Look In Motion?

Authorization

1. Cardholders present their cards (or other secure methods) to merchants in exchange for goods and services.
2. An authorization request is sent to the payment processor by the merchant.
3. The payment processor submits the transaction to the card association, eventually reaching the issuing bank.
4. Authorization requests are sent to the issuing bank, which includes parameters such as CVV, AVS validation, and expiration date.
5. The issuing bank approves or declines the transaction.
6. Once the approval or denial status has been determined, the issuing bank forwards it to the card association, the merchant bank, and then to the merchant.

Settlement and Funding

1. Batches of authorized transactions are sent by the merchant to the payment processor.
2. Transaction details are passed to the card associations by the payment processor. They then communicate the appropriate debits with the issuing banks in their network.
3. Cardholders have their accounts charged by the issuing bank for the amount of the transaction.
4. The issuing bank then transfers the funds for the transaction to the merchant bank, minus interchange fees.
5. Money is deposited into the merchant’s account by the merchant bank.

The development of mobile applications has transformed the way the banking industry operates today. A mobile banking app is good enough to offer important benefits such as:

1. Access your bank accounts on a single platform

There are only a few banking apps that enable you to access multiple savings accounts on their platform, and manage them by transferring money from one account to another or making payments. The user-friendly tools on the app offer an option, which may be something similar to ‘transfers’. To link external bank accounts, you are required to add a new account by selecting the option and providing essential bank information. After the verification, you can have the link validated, and use it to access your account to make payments and check the balance.

2. Manage your finance

An online banking app can help build trust by customizing services to the customers’ needs. It helps them with unique money-saving tools that can take care of their financial future. The ‘invest’ option offers you to make investments in mutual funds, either in equity funds or debt funds. It gives you a range of direct investment options like small-cap, mid-cap, large-cap, index, thematic and multi-cap equity funds. Other than the debt mutual funds, which include short-term, liquid, income and dynamic bond funds, you can also invest in hybrid mutual funds through a systematic investment plan (SIP).

The app also facilitates stock trading through a 3-in-1 account of savings, Demat and trading account. You can invest in currency, equity and commodities using this account. The other investment options are depositing your money in fixed or recurring account for a fixed interest rate.

3. Make Bill Payments

One among the few easiest ways of making payments is through a mobile bank application. The adoption of QR codes for quick payments has led to its widespread usage by several people. With an online banking app, you can pay your credit card bills instantly by using a BHIM app or UPI-enabled app. You have to just enter the credit card details and the specific amount in the ‘Payments’ option, open the UPI-enabled app, scan the code and make the payment.

Making a bank credit card payment through the UPI QR code is highly secured and reliable for there is hardly any chance for error.

4. Avail Instant Personal loans

Mobile applications have eased the personal loan process with minimal documentation. The option ‘Loans’ helps you to choose any types of loans from personal to motor vehicles, smart devices and household items. The application process is simple by providing personal details and uploading supporting documents. Instant personal loans are offered at a lower interest rate in a few hours, without any collateral security. However, you should have a good credit history.

5. Quick and Timely Support

The use of mobile banking apps has helped improve customer relationships for most banks. The use of AI-powered chatbot in the app facilitates the user by having quick and timely assistance anytime. The smart features such as push notifications and alerts remind customers or bring to their notice unusual account activity or low balance, which trigger an action.

There are several mutual fund types each of which have a unique investment objective and asset allocation strategy. Those who are new to mutual funds, they might find it quite tasking in choosing the right type of scheme. This why it is better to do some research and understand the qualities and features of all fund types before making an investment decision.

Most financial advisors recommend investors to make a financial plan. The very first and important step of financial planning is determining your life’s immediate as well as long term goals. Having a clear perspective might help investors with a clear investment objective. If you carry some risk appetite and do not mind investing your money in market linked schemes, you can consider investing in mutual funds. But not all mutual funds invest in the stock market and it is necessary for people to get this notion out of their thought.

If you wish to earn returns by investing in mutual funds but do not want to expose your finances to market volatility, you can consider adding debt funds to your investment portfolio.

What is a debt mutual funds?

Out of the many mutual fund categories, equity and debt funds are some of the most sought after investment avenues. While equity scheme invest majority of its investible corpus in equity and equity related instruments, debt funds are mutual funds that aim at generating capital appreciation by investing in fixed income securities. The debt fund manager builds a portfolio of fixed income securities that generally have a short maturity period. The investment objective of most debt fund is to offer stable returns with minimum investment risk.

Investment portfolio of a debt scheme doesn’t get affected by equity markets. Here’s why

Depending on the investment objective and asset allocation strategy, the underlying securities of a debt fund may vary. For example, a liquid fund invests in securities that mature within 91 days. A short term fund invests in fixed income securities and money market securities such that the duration of the fund portfolio is between 1 and 3 years. Some of the debt securities and money market instruments in which a debt fund invests are treasury bills, government bonds, commercial papers, debentures, GOI securities, cash, and cash equivalent etc.

Debt funds aren’t entirely risk free. Yes, it is true that the underlying securities that comprise of a debt fund portfolio doesn’t get affected by the fluctuations in the stock market. That is because debt funds do not invest in equity and equity related instruments. However, they do invest in fixed income securities and debt instruments that are prone to interest rate risk and credit risk. A debt fund which invests in AA- or other low credit rating bonds may get affected if the company isn’t able to repay credit on time. A spike in interest rates can affect the performance of debt instruments as well.

Debt funds are ideal for those who have an investment horizon of 12 to 24 months. Investors can either make a lump sum investment or start a monthly SIP in a debt scheme of their choice. Systematic Investment Plan (SIP) is the simplest way of investing a fixed sum at regular intervals in debt funds. SIPs are also ideal for anyone who wish to inculcate the discipline or systematic and regular investing. Retail investors can also refer to SIP calculator, a free online tool that let’s you determine the gains that you may receive at the end of your SIP investing journey.

Household debt rose to a record-breaking $14.6 trillion during 2020, the first year of the pandemic. There were many reasons for this record, including consumers relying on their credit cards to live on after a job loss. But the main contributors were student debt and mortgage debt. Student debt only showed a small rise because of forbearance programs, but mortgage debt rose a staggering $10 trillion.

If you were one of the consumers who had to rely on their credit cards to make it through 2020, perhaps to make up for the shortfall in your income after an unexpected job loss, there’s good news.  Effective household debt management plans are available to pay off your debt completely this year. Besides paying off your debt completely this year, you could also improve your financial situation by learning how to invest your income and make it grow.

Tip #1: Restructure Your Debt

We live in a society where debt is almost inevitable because of the discrepancy between income and the rising cost of living. Unfortunately, it’s easy for debt, especially credit card debt, to get out of control, resulting in difficulty keeping up with monthly payments. When this happens, high interest rates force household debt to grow at an astronomical rate.

One great tip for bringing down your credit card debt to a zero balance is to get a debt consolidation loan. This type of loan, of course, does not eliminate your debt but transfers it to another creditor at a lower interest rate to make it easier to pay.

By consolidating debt through a loan from a lender like Hawkeye Associates, almost all the stress you experienced paying down your credit cards disappears. Payments suddenly become manageable.

Tip#2: Learn to Trade Stocks

Unlike many other types of investments, learning how to trade stocks is something that you can do through self-study because there are plenty of online resources available to teach you how to trade stocks.

There are limited hours in the day for you to trade your time for dollars. As an investor, you will put your money to work for you and end up earning far more than through unstinting hard work alone.

Here are some suggestions on how to learn to trade from scratch:

• Open up a stock brokerage account to practice paper trading, a simple way to learn without risking any money. You will learn how to read technical indicators to understand how the market moves.
• Read recommended books and articles written by famous stock traders. These will give you an understanding of how successful investors think.
• Study the psychology of stock trading. How you feel about buying and selling stocks plays a significant role in decision-making.
• Network with mentors and fellow students through social media channels and forums. You will learn from other people’s experiences and share your own.
• Follow the stock market to get a good grasp of how the market works. Read news outlets that provide extensive stock market coverage.

Initially, use these resources to learn at your own pace, then, at a more advanced stage, consider paid subscriptions, going to live online classes, taking online courses, and attending live seminars.

In conclusion, 2020 may have been a difficult year for you, but there are many ways of rebooting your household finances this year, including using consolidation loans to pay off your debt and learning how to invest in stocks to earn money to supplement what you earn from your job.