While understanding every detail of processing credit card payments is not required, merchants with a basic understanding will have an easier time deciding which processing system is the right fit for their business. There are so many different processors available, each with different features and fees, that knowing what happens when your customer pays for your good or service provides a more connected approach to operating and growing your business.
Even though there are quite a few steps in order to fully complete a transaction with a credit card, the whole process is rather quick. Furthermore, it is happening at the same time as a countless amount of other transactions are being processed.
Payment processing is completed in three different stages, each with a few different steps. The first step that we will address will be authorization. This stage refers to validating the card and the funds available to purchase a product or service.
Here is the typical process:
- Step 1: The cardholder (a customer with a credit or debit card) purchases a product or service from your company.
- Step 2: A secure point-of-sale system, like one from a payment processing company like Regulated Payment Systems, captures the cardholder’s credit card information in order to process the transaction.
- Step 3: The information is then forwarded to the card payment brand – this includes Visa or American Express for example.
- Step 4: The payment brand then transfers the information to the bank that issued the credit card to the customer.
- Step 5: The issuer then approves or denies the request, and the results are sent to the payment brand
- Step 6: The Payment Brand takes the information and presents the results to the merchant’s processor.
- Step 7: The merchant then receives the response so the transaction can be completed. This can occur through a secure POS system, online, or via a phone.
- Step 8: If the card is approved, the merchant will receive a number that authorized the transaction. If the customer’s card is declined, merchants will receive notice. The customer can then call the bank to determine the reason it was rejected.
For any questions on how a credit card payment is processed or if you are inserted in acquiring a processor, feel free to contact us at 800-471-6100
Stay tuned as we will dive into the next two phases for processing: Settlement and Funding