When electronic transactions involving credit cards are approved, verified, and settled between the cardholder, the business, and their financial institutions, credit card processing takes place. This process enables businesses to accept credit card payments for goods or services, ensuring smooth and convenient transactions for both customers and businesses.
Step-by-Step Credit Card Processing:
- Capturing Card Details:
The business receives the cardholder’s credit card details. For in-person transactions, this involves tapping, swiping, or inserting the card. For online transactions, it requires selecting a stored card or manually entering the details.
- Transaction Submission:
The company’s point-of-sale system or payment gateway records the transaction details and securely transmits them to the credit card processor.
- Authorization Request:
The credit card processor forwards the transaction data to the relevant card network, which then sends an authorization request to the issuing bank.
- Bank Validation:
The issuing bank validates the cardholder’s account, checking for sufficient funds, potential fraud, or security concerns. The bank then communicates its decision—approval or rejection—to the card network, which relays it to the credit card processor.
- Authorization Response:
The credit card processor transmits the authorization response—either an approval or a decline code—to the business’s payment gateway or point-of-sale system. If approved, the business can complete the sale and provide the customer with goods or services.
- Transaction Settlement:
The business submits a batch of authorized transactions to the credit card processor for settlement. The processor forwards the transaction data to the appropriate card networks.
- Fund Transfer:
The card networks coordinate with issuing banks to transfer funds to the acquiring bank. After deducting processing fees, the acquiring bank deposits the funds into the business’s standard bank account. This process typically takes one to three business days.
- Cardholder Billing:
The issuing bank adds the transaction amount to the cardholder’s account balance, which appears on their monthly statement. The cardholder is responsible for paying their credit card bill as per the terms of their agreement.Understanding these steps helps businesses and consumers make informed financial decisions.
March 13, 2025
