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How Credit Card Processing Works: Online, Fees & Procedure

  • Highlights

  • Credit card processing involves multiple steps

  • It involves various parties other than you and the seller

  • Credit card networks set assessment and interchange fees

  • Your transaction is approved after a lengthy process

Credit cards simplify transactions by allowing you to make cashless purchases simply by swiping your card or providing certain information like the credit card number, CVV, or PIN. Though on the face of it, a credit card transaction takes only a few seconds, the process is quite a complex one. The process not only involves you and your seller, but also other parties that facilitate speedy transactions.

Knowing this process not only helps you appreciate the convenience associated with credit cards, but also makes you aware of behind-the-scenes activities related to your transaction. Here is an overview of the steps involved in credit card processing every time you initiate a transaction.

Additional Read: Tips to get the most out of your Credit Card

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How does Credit Card Processing Works?

Here is an overview of the steps involved in credit card processing every time you initiate a transaction.

Step 1: Consumer

Irrespective of whether you are using a store credit card or an international credit card, the first step for any transaction is when you swipe or enter your credit card number and other details online in order to initiate a transaction.

Step 2: Merchant

Once you initiate a purchase using a credit card, the merchant requests you to provide them with the CVV or password linked to your credit card. If you are transacting online, you are required to key in credit card details like credit card number and CVV. When carrying out the purchase offline, you will need to enter the PIN to authenticate your transaction.

Step 3: Payment processor

The payment processor now collects your credit card information and securely transmits it to the credit card network. The payment processor is responsible for facilitating the communication between various parties like the merchant and the issuing bank.

Step 4: Card network

Once the credit card network receives your card information from the processor, it passes it on to the issuing bank. All credit cards work on a particular credit card network like VISA, MasterCard, American Express, and others. The networks are also responsible for setting assessment and interchange fees relating to your credit card. While the credit card network collects the assessment fees, they route the interchange fees to your issuing bank.

Step 5: Issuing bank

Once the issuing bank receives the payment request, it checks for the legitimacy of the transaction and also verifies if your account has enough credit. On satisfactory verification, it intimates the network about the approval. Credit card companies may decline the payment if they find the transaction to be fraudulent or if you don’t have the required credit to complete the transaction.

Step 6: Merchant

Once the network receives the transaction status as ‘Approved’ or ‘Declined’, they further pass it on to the merchant in the reverse order. The message first goes to the processor and then reaches the merchant, who delivers the goods or services that you wish to purchase.

Additional Read: Apply for Bajaj Finserv RBL Bank Credit Card

Note that this is only the process by which your transaction is either approved or declined. The settlement of payment is done later via another process that can take several days to complete.

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