Understanding the Process Behind Credit Card Transactions
This article explains the credit card processing system, detailing each step from swipe to settlement. It clarifies the roles of banks and card networks, helping consumers understand transaction approvals, settlement procedures, and potential fees involved. Aimed at demystifying the payment process, the guide offers valuable insights for credit card users to better manage their transactions and related charges.
Understanding How Credit Card Transactions Are Processed
Confused about how charges appear on your credit card bill? Here's a straightforward overview of the key steps involved in processing your credit card payments, helping you grasp how the system functions and what fees might be involved.
The main entities in credit card processing include the cardholder, the merchant or business, the merchant's bank (acquiring bank), the cardholder's bank (issuing bank), and major networks like Visa, Mastercard, or American Express.
Initially, you present your credit card to the merchant for a swipe or insert. The merchant uses point-of-sale equipment linked to their bank to transmit the card details to the payment processor. Thanks to technological advances, this process takes seconds. The processor then forwards the data to the card issuer for approval. Once approved, an authorization message is sent back through the network to the merchant's terminal.
After authorization, your interaction with the merchant ends. The backend process continues with settlement, during which your bank deducts the purchase amount from your account, and the merchant's bank receives the funds. Both banks are part of card networks that facilitate clearing and settlement. The issuer pays the merchant's bank, and eventually, you owe the issuer the transaction amount plus any applicable fees as per your agreement.
