How a credit card payment works (in 7 easy steps)

Dipping a payment card into a credit card reader or submitting payment information online are second nature to consumers. But what happens after that card information is captured? It triggers a sequence of events invisible to consumers yet imperative to keeping money flowing to businesses. This highly intricate process involves various players throughout the payments ecosystem to ensure that the right amount of money arrives in the right place at the right time.

To help understand the process, we break down how a credit card payment works in seven simple steps.

Step 1: Purchase

The consumer decides to make a purchase. If the account information is captured via a physical card reader – for example, the dip of a chip card or the tap of a digital wallet – it is considered a card-present transaction. If the payment takes place online, over the phone, or is keyed in, it is considered a card-not-present transaction. The fees and risks associated with card-present and card-not-present transactions vary considerably. Click here to learn more about credit card fees.

Step 2: Capture

Card account information is captured by the business via a card reader, the point-of-sale (POS), or a website. A request for authorization is sent via the merchant services provider (a MSP such as Paystri) to the acquiring bank. An acquiring bank (also known as the acquirer) is the financial institution connected to the MSP that allows businesses to accept card payments and send them to the card networks.

Step 3: Card Network

The acquiring bank then sends the authorization request to the appropriate card network (Visa, Mastercard, Discover, American Express).

Step 4: Card Issuer

The card network sends the authorization request to the financial institution or organization that issued the card. This is also known as the issuing bank or issuer.

Step 5: Approve or Decline

The issuer approves or declines the transaction and sends that response to the card network, which then goes to the acquiring bank, the MSP, and ultimately the merchant.

Step 6: Response

The merchant receives the response as either an approval or a decline. If approved, a receipt is issued confirming the purchase. If declined, the transaction is either cancelled or completed with another form of payment.

Step 7: Funding

Within one to four business days, the merchant receives funds for the transaction.

Payment processing can be complicated, but Paystri helps businesses understand the fundamentals so they can make their payment programs soar. Get in touch to see what we can do for you.