Credit card payment processing involves a series of steps that take place to complete a transaction when a customer pays with a credit card. This process occurs nearly instantaneously but involves multiple parties, including the cardholder, the merchant, the acquiring bank, the issuing bank, and the credit card networks (e.g., Visa, Mastercard).

Here’s a step-by-step breakdown of what occurs
when a customer makes a payment with a credit card:

01. Cardholder Initiation:

• A cardholder provides their credit card details to the merchant to make a purchase.

02. Merchant Collection:

• The merchant's point of sale (POS) system captures the credit card information and forwards it to the acquiring bank (or the merchant's bank).

03. Acquiring Bank Forwarding:

• The acquiring bank forwards the transaction details to the credit card network (e.g., Visa or Mastercard).

04. Credit Card Network Communication:

• The credit card network routes the transaction information to the issuing bank (the bank that issued the credit card to the customer).

05. Authorization Request:

• The issuing bank receives the request and checks the account for sufficient funds or available credit.
• The issuing bank also checks for any other red flags like fraud or past due accounts.
• An authorization code is generated if the transaction is approved, or a decline message is generated if it is denied.

06. Response Backtracking:

• The response (approval or denial) travels back through the credit card network to the acquiring bank.
• The acquiring bank then sends the response to the merchant's POS system.

07. Merchant Response:

• The merchant receives the response and completes the transaction if it is approved, or asks the customer for another form of payment if it is denied.

08. Transaction Settlement:

• At the end of the business day, the merchant sends all the authorized transactions to the acquiring bank in a batch for settlement.
• The acquiring bank forwards the batch to the credit card networks for settlement.

09. Payment Transfer:

• The credit card networks direct the issuing banks to transfer the funds for the transactions to the acquiring banks.
• The acquiring banks then deposit the funds into the merchant’s bank account, minus any transaction fees.

10. Fees and Charges:

• There are several fees involved in credit card processing which may include interchange fees, assessment fees, and a markup from the acquiring bank or processor.

This entire process, from authorization to funding, generally takes 1-3 days, although the authorization and approval steps happen within seconds. The streamlined process allows for the quick, convenient transactions that credit card users and merchants appreciate.