Credit card payment processing is the chain of steps that happens between a customer tapping, swiping, or entering a card and the business seeing that money in its bank account. It happens in under two seconds at the counter, but there are several parties involved behind that speed, and the same steps apply to payment processing everywhere, whether the sale happens in person or online.
How credit card payment processing actually works
Every transaction moves through roughly the same path.
- Authorization. The card reader or gateway sends the transaction to the processor, which checks with the card network and the customer bank that the card is valid and the funds or credit are available.
- Approval or decline. The customer bank approves or declines in real time, and that response travels back to the terminal.
- Batching. At the end of the day, the business closes out its batch of approved transactions and sends them for settlement.
- Settlement and funding. The card networks move money from the customer bank to the business bank, usually landing one to two business days later, minus whatever fees apply.
Who is involved
A single credit card payment usually passes through four separate parties: the card network such as Visa, Mastercard, American Express, or Discover, the issuing bank that issued the customer card, the acquiring bank or processor that works with the business, and the business itself. Each of the first three takes a small piece of the transaction, and those pieces make up most of what shows up as processing fees.
In person versus online processing
Card present transactions, where a physical card is read at a terminal, carry lower risk and typically lower rates than card not present transactions, where a card number is typed in online or over the phone. That is part of why a payment gateway for a website is usually priced and structured differently than an in person terminal.
Want a plain answer on what your business would actually pay per transaction, without the industry jargon. Talk to us and we will walk through it using your own sales.