Credit card processing includes a series of steps that give businesses the ability to accept credit card payments and process those payments. Here’s an overview of the process:
1. Transaction initiation
The customer provides their credit card information to the business, either by swiping, inserting, or tapping their card at a POS terminal or by entering their card details on an e-commerce website or mobile app.
2. Authorization request
The payment gateway securely transmits the payment information, encrypting the data before sending it to the business’s acquiring bank. The acquiring bank forwards the transaction details to the appropriate payment network to start the authorization process.
3. Transaction authorization
The payment network routes the transaction to the issuing bank, which verifies the cardholder’s account, checks for available credit or funds, and assesses the risk associated with the transaction. Based on these factors, the issuing bank either approves or declines the transaction.
4. Authorization response
The issuing bank sends the authorization response—either an approval or a decline code—to the payment network, which forwards it to the acquiring bank. The acquiring bank relays the response to the payment gateway, which ultimately passes it on to the business’s POS system. At this point, the business receives the approval or decline message.
5. Transaction completion
If the transaction is approved, the business provides the goods or services to the customer. The approved transaction is added to a batch of other transactions awaiting settlement.
6. Settlement
At the end of each day or at another predefined period, the business submits the batch of approved transactions to the acquiring bank. The acquiring bank requests funds from the issuing bank through the payment network. The issuing bank transfers the required funds to the acquiring bank, which deposits the money into the business’s account, minus any fees associated with credit card processing.
Typically, authorization takes a few seconds and settlement takes a couple of days. International credit card transactions
Many modern businesses also conduct cross-border commerce. Although the customer-facing process might look similar, the backend typically requires international credit card processing solutions that are more in-depth than domestic payments.
Along with the need for an international payment gateway, cross-border transactions can carry more fees, such as foreign exchange (FX) markups, fees for cross-border use of card network infrastructure, and fees paid to intermediary banks.
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