How Credit Card Processing Works

Credit card processing plays a vital role for businesses that accept credit card payments, whether you're managing a local retail shop or a large online platform. Understanding how this system works is key to choosing the right payment processor and ensuring smooth transactions.

1. The Cardholder Initiates the Payment

The process begins when a customer uses their credit card to make a purchase, either in-person via a POS terminal or online. The transaction information is sent to the payment gateway.

2. Payment Gateway Handles the Transaction Request

A payment gateway securely collects and encrypts the customer’s card information. It sends the data to the payment processor for verification while ensuring the security of sensitive information.

3. The Payment Processor Verifies the Payment

The payment processor checks the legitimacy of the transaction by communicating with the issuing bank to verify card details and fund availability.

4. Authorization from the Issuing Bank

The issuing bank evaluates the request and approves or declines the transaction based on factors like account balance and fraud detection checks. Approved transactions are sent back to the processor with an authorization code.

5. The Merchant's Bank Receives Authorization

The acquiring bank, the merchant’s bank, receives the authorization and informs the merchant that the transaction has been approved.

6. The Merchant Completes the Sale

Once approved, the merchant processes the sale, and the customer receives their product or service.

7. Settlement and Fund Transfer

In the final step, the acquiring bank settles the transaction by transferring funds (minus fees) to the merchant’s account. This process usually takes a few business days.

8. Understanding the Fees

Credit card processing comes with fees, including transaction fees, monthly fees, and chargeback fees. These costs vary depending on the provider and your business type.

Credit card processing is a multi-step process involving multiple players working together to ensure secure and accurate transactions. By understanding this process, you can make better decisions for your business.

Read the whole blog to know more:

https://webpays.com/how-credit-card-processing-works.html 




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