Everything You Seriously Wanted to Know About Credit Card Processing

Everything You Seriously Wanted to Know About Credit Card Processing

Credit card processing can be expensive, overwhelming and at times confusing. Some people consider it to be a ‘necessary evil’ for their business. However, despite all the negative impressions created, the entire credit card processing has proved to be the easiest, efficient and secured to those who have used it as intended. Here’s a breakdown of how the process works and who the key players are.

How credit card processing works: Key players


A retailer who accepts a credit card payment. He must have a working credit card reader to be able to receive such payments.


The customer who owns a credit card being used in the transaction. To successfully use the card, he must have a Personal Identification Number of the card.

Acquiring bank:

The bank in which the merchant has an account. The acquiring bank has the authorization to hold the merchants’ funds and at the same time directly receive the amount paid using the cardholders’ credit card.

Issuing bank:

The bank in which the cardholder has an account. The bank owns the credit card which the holder uses to make payments when purchasing different items.

Card association:

MasterCard, Visa, American Express and discover are just some of the many legally registered card associations. These are not banks but instead governing bodies which set interchange rates, maintain and improve payment networks and most importantly arbitrate between issuing and acquiring banks.

Payment processor:

This a company which handles all the processing and batching of purchases made using credit, debit or gift card payments. Payment processing companies typically provide technological solutions to such payment processes.

The process

Whenever a customer uses a credit card to make a payment, each of the parties mentioned above takes part in it. Here is a simple breakdown of the process.

It begins when a customer makes a purchase using his credit card. This process involves swiping the card through a processing terminal which has been programmed to recognize the card and share the information with the credit card company.

Based on the information provided, the credit company authorizes or rejects the transaction. If it allows the operation to proceed, it sends payment to the merchants’ bank through a recognized merchant service provider. Afterward, a statement is sent to the merchant with details of the transactions and how much money is charged a fee for the same.

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