Credit Card Processing: How Does It Work?

When thinking of credit card processing, you need to focus on all the participants:

<strong>The Customer and the Merchant</strong>

The customer is the person who owns the credit card. A merchant is a person selling the goods. It could be a store, vendor, or an individual selling a product.

<strong>Point of Sale (POS)</strong>

POS is a debit or credit card reader (machine) or scanner that accepts a sale.

<strong>Payment Gateway</strong>

It is an eCommerce application service that approves a credit or debit card sale.

<strong>Payment Processor</strong>

It is a third party that handles debit or credit card transactions from various channels.

<strong>Credit Card Network</strong>

It collects data from the payment processor and verifies the balance on the card.

<strong>Card Issuer</strong>

A financial institution or bank that offers credit to consumers is a card issuer.

<strong>Here is how it works</strong>

• A customer or cardholder buys something from the merchant

• The seller swipes the card through a card reader (POS). For online shopping – payment gateway

• A payment processor picks up the notification from the POS and sends it to a network

• The credit card network contacts the card issuer to check the balance on the account

• The network receives an authorization code if the bank okays the sale

• The seller (merchant) receives the code from the network to verify the sale

• The merchant approves the transaction based on the code from the network

• Then the customer or cardholder receives the product