Credit cards have made our lives easier, since they are safer and more convenient to use, as compared to cash. But the seemingly simple and easy act of paying by a card must in fact be supported by a very elaborate behind-the-scenes system.

When you apply for a credit card, the bank you apply to carefully screens your application.

A credit limit is worked out for you, based on your financial capability and other parameters like income levels, educational qualifications, age etc. The bank that issues you the card is called the 'issuing bank'.

At the heart of the credit card business is a mutually beneficial arrangement between the issuing bank and a host of businesses called merchant establishments, via international networks such as Visa and Master card.

Merchant establishments can be hotels, shops, travel agencies or any place where money transactions are made. The banks that enroll merchant establishments are called ‘acquiring banks’.

Your credit card is valid in any merchant establishment that accepts your network (ie Master Card or Visa), irrespective of the issuing bank. Most Indian card issuing banks are part of either Master Card network or Visa network, or both. There are others credit card networks like American Express and Diners Club too.

Also Read: Protect Yourself From Credit Card Fraud

This network is at the heart of any credit card activity. When you use a card at an establishment to purchase a product or service, your card is swiped on a swipe-machine. The swipe machine is connected to a central computer belonging to the network, which in turn is connected to all issuing banks.

The system verifies with your issuing bank whether you have sufficient credit to cover the purchase in a few seconds, and approves or rejects the transaction. As soon as approval comes through, you are asked to sign the charge slip. The merchant then verifies your signature with the one at the back of the card.

The charge slip is then forwarded to the acquiring bank, which in turn settles the transaction with the merchant. The issuing bank also proceeds to bill you for payment as per the cardholder agreement. The acquiring bank will settle the transaction with your issuing bank through the network.