How Does Credit Card Processing Work

Content Source : Credit Card Processing: A Detailed Guide for Merchants

Step 1: Merchant takes the credit cardholder’s payment information at the card terminal (with a chip, magnetic stripe swipe, or through the contactless tap), over the phone, or online.

Step 2: Credit card processor directs the card info to the credit card network via an internet connection through a payment gateway.

Step 3: Then, the Payment gateway sends transaction data to issuing bank to request authorization via card networks.

Step 4: Once the customer’s bank validates the payment, it authorizes the transaction amount. Then, the authorization gets sent back to the merchant. (Note: If there are inadequate funds or suspicion of fraud, the transaction will be denied.)

Step 5: After the transaction is authorized, a hold is placed at the issuing bank for the amount.

Step 6: Then the merchant settles a batch of transactions (usually once per business day).

Step 7: After that the issuing bank releases the funds to the acquiring bank.

Step 8: Funds are deposited into the merchant’s bank, minus any interchange and processor fees.

→ Difference between a Payment Processor and a Payment Gateway

As we have discussed above, the entities involved to process credit cards transactions, the ones that are crucial for making a secure and fast transaction for your business are a Payment Processor and Payment Gateway.

Now, generally speaking, both the terms are interchangeable; however, there are some important distinctions to remember. Let’s talk about them in detail:

Payment Processor

• Payment processors process and send payment information.
• Payment processors deliver important data, such as the credit, debit, or credit card number, to the issuing bank.
• A payment processor includes both a hardware and a digital component

Payment Gateway

• Payment gateways not only perform the task described but also verify the transfer of cash between customer and seller.
• The gateway is regarded as the general infrastructure at the level of purchase: the symbolic cash register.
• A gateway requires more than hardware and other processing equipment.

→ 4 Best Equipment for Credit Card Processing:

• Point-of-Sale “POS” System
• Virtual Terminal
• Mobile / Wireless Terminal
• Click-to-Pay Email Invoicing

Here are some tips that you can follow to get the best solution from a credit card processing company:

• Look for the credit card processing cost that the processing companies charge
• Identify the setup process

• Ask if they accept credit cards of all the banks
• Check all the fraud prevention measures
• Identify customer support
• Merchant services

→ 7 Mistakes You Must Avoid When Choosing Credit Card Processing Services

• Thinking that the lowest rate is the ‘lowest overall cost’
• Losing fast access to your money
• Not giving a full range of payment options
• Not being vigilant against the suspicious buyers

• Underestimating the importance of data security
• Taking PCI compliance on your own
• Not thinking about the support or setup availability

→ FAQs Related to Credit Card Processing

Qn 1: What is a Credit Card Payment Method?

A credit card payment method is a process in which a credit card network receives payment details from the acquiring processor. This request is then forwarded to the issuing bank and sends the issuing bank’s response to the processor.

Qn 2: What is an ISO for Credit Card Processing?

An ISO (independent sales organization) is a company that acts as an intermediate between merchants and the acquiring banks that takes in the payments from credit card transactions. The ISO serves a number of functions, including finding new merchant clients on behalf of the acquiring banks and major payment processors, processing the transactions put through by small businesses, and, in many cases, providing support and customer service to merchants for the lifetime of their relationship with the ISO.

Related Read: How Payment Processing Can Help Grow Your Small Businesses