How Are Credit Cards Processed?

Credit cards are a convenient form of payment for many customers. More than 23 billion credit card transactions are processed each year in the United States. When it comes to a business accepting credit card payments for goods and services, it is important to know how these payments are processed. Credit processing services have a few distinct steps that result in money transferring from the customer’s account to the merchant’s account securely and quickly.

Authorization

The first step in any credit card transaction is the authorization. This ensures the merchant that the customer has the means to pay for the goods and services they want to buy. Once a customer hands the card information over, the request is submitted to the merchant credit processing services, or acquirer. The request is then sent to the card issuer or bank where the customer’s account is managed. If there are funds available, the authorization is sent back through to the acquirer and to the merchant. Then the customer’s purchase can be completed. This step usually happens in under a minute.

Batching

The next step in the credit card process is batching. A merchant will not send each individual transaction through to receive payment. Instead, the merchant will put multiple transactions in a batch to transmit for credit processing services. This can be multiple transactions spread out throughout one day, throughout an entire week or any specific amount of time that works for the merchant.

Clearing

The third step in the process is clearing. During clearing batches are sent through to the card issuer to request payment. A credit card payment gateway will distribute each transaction to the correct issuer. Once the issuer receives the request, a fee is subtracted and the final payment is routed back through the payment gateway to the acquirer.

Funding

The final step in the process provides the merchant with their money. Once the merchant account has received the payment, they will also subtract a fee. These fees are typically set and the merchant will agree to them in order to use the service. After all fees are taken, the merchant will receive their money. The time between the initial purchase and final payment to the merchant can take up to three days, but usually the process is complete within 48 hours from the initial purchase. The time varies based on the specific credit card issuer or bank.

This is a simple explanation of how credit processing services work in facilitating payments to merchants from their customers. With the use of credit cards continuing to rise, most merchants are now familiar with this process and know exactly how vital it is when attempting to sell to modern consumers.