Most people don’t think twice about swiping their credit card for a purchase. Yet, the process of authorizing and processing a credit card payment is much more complex than meets the eye. From the moment a customer swipes their card to the time the funds are deposited into the merchant’s bank account, there are multiple parties involved in a complex series of steps. In this blog post, we will delve into the intricacies of the credit card payment process, shedding light on what happens behind the scenes of every transaction.
Step One: Authorization
Once a customer swipes their card, the merchant’s terminal communicates with the payment processor to obtain authorization. The payment processor sends the authorization request to the issuing bank, which reviews the customer’s account for sufficient funds and puts a hold on the amount of the transaction. If the issuing bank approves the transaction, an authorization code is generated that the payment processor sends back to the merchant’s terminal.
Step Two: Capture
Once the authorization is approved, the merchant can proceed with capturing the funds. This involves transmitting the transaction details and authorization code to the payment processor, which then forwards them to the acquiring bank. The acquiring bank reconciles the transaction and deposits the approved funds into the merchant’s account, less any fees.
Step Three: Settlement
Settlement is the process of transferring funds between the acquiring bank and the issuing bank. The acquiring bank sends a settlement request to the issuing bank, which verifies the transaction details and approves the transfer of funds. This process can take up to several days to complete, depending on the types of cards involved and the amount of the transactions.
Step Four: Funding
Funding is the final stage of the credit card transaction process. Once the funds have been settled and deposited into the merchant’s account, they can be accessed and used to pay for business expenses. The speed at which funds are deposited depends on the merchant’s payment processor, with some offering same-day deposits and others taking up to one or two business days to process.
Step Five: Chargebacks
Chargebacks occur when a customer disputes a transaction with their issuing bank, typically due to fraudulent or unauthorized activity. In such cases, the issuing bank investigates the matter and, if it finds the customer’s claims to be legitimate, reverses the transaction and debits the merchant’s account for the amount of the original transaction.
In conclusion, every credit card payment involves a complex sequence of steps and a host of players, including the issuing bank, payment processor, acquiring bank, and merchant. Though the process happens in mere seconds from the customer’s perspective, there is a lot of work happening behind the scenes to ensure a seamless transaction.
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