How Does Credit Card Processing Work?

Although you do not need to know the intimate workings of the bankcard system to find a good credit card processing company, knowing can be helpful.

Having a general understanding of how the process of credit card processing works will enable you to realize as many savings as possible.


Key players in credit card processing

Knowing the key players involved in the authorization and processing of a transaction is important.

They are:


Cardholder –A cardholder is a person who gets a bank card from an issuing bank and presents it to merchants when paying for goods and services. If you own a credit or debit card, then you are familiar with this role.


Merchant – A business that sells goods and services is a merchant, but the only merchants who matter in this explanation are those who accept bankcard payments. That being said, a merchant is a business that has a merchant account for accepting debit or credit cards.


Merchant/acquiring bank – A member of the card associations, a merchant bank gets into contracts with merchants to maintain accounts that allow the business to accept debit and credit cards. An acquiring bank provides a merchant with software and equipment that accepts promotional materials, cards, and other aspects of card acceptance.


Issuing bank – An issuing bank gives credit cards to the consumer. This bank also has to be a member of the card associations. It pays the acquiring bank for any purchase that the consumer makes. It is the cardholder’s responsibility to repay the issuing bank.


Card associations – Associations such as MasterCard and Visa are not banks; they play the role of custodian for their card brands. They are the governing bodies of a number of financial institutions that work together to support electronic payments and credit card processing.


Credit Card Transaction Process

These transactions are processed on a number of platforms such as e-commerce stores, physical stores, and wireless terminals. The whole process – from the time a consumer slides a card into the reader to the production of a receipt – takes place in just 2 or 3 seconds. It can be broken down into three stages, which are:


#1 Authorization

In this stage, the merchant needs to obtain approval for payment from the bank that has issued the credit card. The consumer gives the credit card to a merchant who swipes it through a Point of Sale terminal. The details on the card will be sent to the acquiring bank via a phone line or internet connection.

The acquiring bank forwards the details to a credit card network, which clears the payment and requests the issuing bank for payment authorization.


#2 Authentication

In this stage, the issuing bank will verify the validity of the consumer’s credit card with fraud protection tools and check the available funds. Once the payment is approved or declined, the merchant will get the appropriate response. When the merchant receives a response, the issuing bank places the amount of the transaction in the customer’s account.

Upon completion of the sale, the merchant gives the cardholder a receipt.


#3 Clearing and settlement

In the stage of a clearing, the transaction will be posted to the merchant’s statement as well as the cardholder’s monthly bill.

This usually occurs at the same time as the settlement stage. The amount is posted to the customer’s monthly statement, which he or she will be expected to pay at the end of the month.

For instance, if you are running a veterinary medical facility, you should look into vet office credit card processing.

This payment option will be quite convenient for most of your customers who prefer not to carry cash on their person when attending to their pets.If you offer bed bug extermination in NJ, accepting credit cards for in-home services is convenient as well.


Author Bio:

Jim Thompson

Title: Super-Connector at OutreachMama

Jim is a super-connector with Towering SEO and OutreachMama who helps businesses find their audience online through outreach, partnerships, and networking.  He is a professional writer who has been in the business for 5 years. He has hands-on experience with cars, tech, and relationship advice, among other things. Because of how quickly he can turn articles around, he is able to take on multiple projects at once. His writing experience spans from SEO articles to technical guides and everything in between.


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