How Credit Card Payment Processing System Really Works

An incredibly complex process that involves multiple steps to complete is credit card processing. This is how it works:

First, the information is passed from the cardholder. It then flows through a merchant's processing company and credit card networks to the cardholder's bank. It flows in reverse back through the same chain to the merchant, once the bank approves or denies the transaction, to let them know if the payment went through.

Credit Card Processing Steps

Credit card processing can be reduced to six steps. Transferring a cardholder's payment information and authorization from one party to another is involved with each of these steps. To determine whether a purchase has the necessary funds to be completed is the primary job of the credit card processing-cycle. An average of 15 seconds is taken to complete the transactions with an EMV chip credit card.

Customer

When a cardholder swipes, dips their card, or hands over their payment information to the merchant, the first step in credit card processing happens which is on the customer level.

Merchant

The payment information is accepted and collected by the merchant. This can be done in two ways. First, the payment can be accepted physically by a card-present transaction, with some credit card reader, which usually occurs at a storefront. The merchant step can also happen online for card-not-present transactions, were instead of a card reader, merchants use an online gateway to collect the payment from the customer.

Processor

Sending the payment details to the card network is the prime role of the credit card processor. Firstly the credit card processor collects the data. It is responsible for routing the data across other stages and facilitating communications between various parties.

Card Networks

Our customers’ card will operate one of the major credit card networks. The most common ones are MasterCard and Visa. When the payment information from the processor is received by the networks, they will pass it to the customer's bank.

Consumer Bank

The payment request is sent to the cardholder's bank; they check whether the cardholder has appropriate funds or credit to complete the purchase. The bank also runs through additional security measures. A message is sent back through the networks and through the credit card processor, allowing the transaction.

Back to the Merchant

Finally, the message that the payment has been requested or denied flows back through the same channels it did to get to the cardholder's bank. This usually corresponds with a message on the card reader like Declined or Approved, when the transaction is handled in-person. The merchant is expected to provide the customer with the goods or services assuming that the transaction is cleared.

At this point, no funds are released yet, which means the transaction is not completely settled. This is a separate process that takes up to several days to complete, depending on the card networks involved. Visa and MasterCard transactions tend to settle faster.

AxialPay provides solutions that simplify the payment process within your business and enables you to focus on your daily activities. Our team is committed to delivering the right solutions and the best customer service. AxialPay offers payment solutions including point of sale and card processing. We can provide you with solutions for all your payment needs.