Credit card processing may seem simple. However, in the few seconds it takes to make a purchase with a credit card, there are several steps that occur behind the scenes.
How exactly does the payment process work?
From start to finish, here are the basics of how credit card processing works with an integrated payment system.
One of the keys to understanding how credit card processing works is understanding all of the players involved. Even though a credit or debit card transaction only takes seconds to approve or deny, there are several players in the game. The customer and the merchant are only the starting and end points.
- The customer: The person whose card is swiped.
- The merchant: The business that ends up with the money in exchange for the goods or services provided to the customer.
- The ERP/accounting software: The resource a business uses to record and report financial transactions.
- The integrated payment system: The system that automates payments and allows you to accept credit cards within your ERP/accounting software.
- The payment gateway: The virtual equivalent of the point-of-sale (POS) machine you’d swipe your card in if you visited a traditional brick-and-mortar store.
- The card issuing bank: The bank that issued the customer’s credit card. For example, a customer who has a Visa® may have it issued from one of many local or national banks such as Chase or Wells Fargo.
- The credit card network: The place where everything comes together for credit card processing and collection of fees, such as First Data.
- The merchant’s acquiring bank: The bank that issued the merchant account, where the merchant can withdraw funds.