An Overview of the Credit Card Payment Process

Because of the speed of communication devices, the credit card payment process seems fairly quick and easy. However, while credit card transactions occur almost instantaneously, there are many steps in the process. Keep reading for a brief overview of the credit card process.

Party Time

There are a number parties involved in this process: first there is the customer; next, there is the business or merchant who is receiving the payment for goods or services; then there is the bank that the merchant uses to provide the processing services, often called the acquiring bank; and finally there is the bank that issued the payment card to the customer, known as the issuing bank.

Often, there is one more party often involved in the transaction, who provides the terminal for physical transactions or the payment gateway for digital transactions and usually provides access to a merchant account. This party facilitates the communication between the other parties on behalf of the merchant. This party is sometimes referred to as a payment processor.

How it Works

When a credit card is swiped or input into a payment gateway the credit card payment process has begun. The payment gateway encodes the credit card data and facilitates communication between the acquiring bank and the issuing bank. The issuing bank either approves or declines the transaction. If the transaction is approved, the merchant is notified, the transaction between the merchant and customer is finalized, and the sum of the transaction is deposited in the merchant account until it clears.


The money that is exchanged between the issuing bank and the acquiring bank is actually money being lent. That’s one of the reasons the credit card payment process can be a bit confusing. The funds exchanged in the transaction are actually lent by the issuing bank to the customer. Furthermore, the acquiring bank lends money to the merchant account until the funds from the issuing bank clear. Both the issuing and acquiring banks naturally charge rates for this transaction and these are referred to as interchange fees and discount rates. These are typically charged as percentages of the transaction and are paid by the merchant.

Rates and Fees

Not all rates and fees associated with the credit card payment process are the same. The type of business you run will impact the interchange rate you are charged. Transactions deemed to be safer (like physical storefronts and food service) come with lower costs, likewise, transactions deemed to be riskier (online sites or high ticket items) incur higher costs.

Need More Information

Processing credit cards can be quite complicated. After all, a lot of sensitive personal and financial information is involved in the process. If you need help understanding the credit card process from an expert in the field, call Allied Wallet. We can help you sort through the complex workings of credit card transactions to simplify the process for you and your business. Call today with your questions.

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