Credit card processing involves a series of steps to facilitate electronic transactions between a customer, a merchant, and financial institutions so that the merchant can accept payments. When a customer makes a purchase using a credit card, the process begins with the merchant swiping, dipping, or manually entering the card information into a point-of-sale (POS) terminal.
The transaction details, including the card number, purchase amount, and merchant information, are encrypted and sent to the payment processor. The payment processor forwards this information to the card network (such as Visa, MasterCard, American Express, or other credit card networks), which verifies the transaction and checks for available credit on the customer's account.
Next, the payment network sends an authorization code or decline message back to the credit card processing company, which then relays the information to the merchant's POS terminal. If the transaction is authorized, the customer's funds are reserved, and the sale is completed.
At the end of the day, the merchant batches all authorized transactions and submits them to their acquiring bank, which acts as an intermediary between the merchant and the card networks. The acquiring bank forwards the batch to the card networks, which distribute the funds to the issuing bank (the customer's bank). The issuing bank then transfers the appropriate amount from the customer's account to the merchant's account, completing the credit card processing cycle.
Throughout this process, security measures such as encryption and authentication protocols ensure the confidentiality and integrity of the transaction data, safeguarding sensitive information from unauthorized access to credit and debit cards.
Credit card processing fees are an aspect of accepting credit cards that merchants must always be aware of. Both the credit card processor and the credit card company may levy fees on the merchant—payment processing fees, incidental fees, cancellation fees, and even monthly fees—which can wear away at a merchant's profits. That's why so many merchants that accept credit card payments are look for a way to eliminate processing fees.