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Comprehensive Guide to Credit Card Processing

Boaz Gam

Boaz Gam


6 min
How Does Credit Card Processing Work? Parties Involved in Credit Card Processing Main Steps of Credit Card Processing In-Store Credit Card Processing
How to Optimize the Process? Credit Card Processing in E-Commerce How to Improve Card Processing in E-commerce? How Can Payneteasy Help?

Whether you are an offline or online merchant, it is most likely that you deal with credit card processing on a daily basis. While many sellers disregard the complex algorithm that launches after the client clicks the “Pay” button, it is best to know how it works.

How Does Credit Card Processing Work?

These days, the vast majority of trade activities are conducted with credit card purchases at land-based and online stores. But how do credit card transactions work? To understand what exactly the process entails, it is vital to know which entities participate in it.

Parties Involved in Credit Card Processing

Behind a seemingly simple purchasing process, there is a complex system of cooperating parties, such as:

  • The cardholder - the consumer making the purchase.
  • The issuing bank - the cardholder’s bank.
  • The merchant - the seller providing the product or service.
  • The acquiring bank - the merchant’s bank.
  • The payment gateway - the intermediary technology between the merchant and the payment processor that collects essential data and returns the transaction’s approval or rejection.
  • The payment processor - the company that processes credit and debit card transactions for the merchant. Payment processors connect the issuing bank, the seller, and the card network.

The card network mentioned above is the last puzzle piece that makes the credit card processing algorithm complete. It acts as the transactions’ facilitator by creating virtual payment infrastructures.

The major globally renowned credit card networks are:

  • Visa
  • Mastercard
  • American Express
  • Discover
  • JCB
  • China UnionPay

Apart from aiding the transaction flow, a credit card network regulates which cards a certain merchant deals with. However, the acceptance rates of the major card networks are fairly similar, exceeding 10 million locations.

Now that you are familiar with the main elements of this system let’s move on to find out the key stages of how credit card processing works.

Main Steps of Credit Card Processing

So what is a credit card processing system, and what steps does it consist of? Here is what happens during card processing:

  1. The consumer initiates an order and enters card data on the merchant’s website.
  2. The merchant collects the information about the order and sends it to the card processor.
  3. The card processor forwards the transaction information to the credit card network, which passes it to the cardholder’s bank.
  4. The issuing bank checks the information for accuracy and the availability of funds in the account and forwards the verification results back to the credit card processor.
  5. If permission to write off funds is given, the specified amount is transferred to the seller's account.
  6. The consumer receives the transaction report with the information on the completed payment or on the refusal to accept funds.

Depending on the seller's bank, the type of credit card, and the payment system used, a commission may be charged during the transaction.

In-Store Credit Card Processing

When you present a bank card to a cashier in an offline store to pay for goods, the POS terminal reads the card data and payment information and sends it to the acquiring bank where the merchant has an account. The merchant's bank then contacts the cardholder’s bank. If the transaction is approved by the issuing bank, then the specified order amount is transferred to the seller's account.

How to Optimize the Process?

It is only natural for a merchant to wish to create the smoothest purchasing process for the customer. Luckily, land-based businesses have the opportunity to do so by optimizing credit card processing, some of the best solutions being:

  • Enabling contactless payments via kiosks
  • Facilitating the use of e-wallets
  • Setting up mobile points of sale (mPOS)

It is also worth for merchants to look into obtaining an all-in-one solution, such as a smart POS terminal, which typically:

  • Is integrated with the popular acquirer banks
  • Offers multi-card support
  • Features a user-friendly SDK
  • Comes along with a convenient management system

Besides, the smart POS providers often cater to the clients’ need for technical support and consultations.

Credit Card Processing in E-Commerce

In e-commerce, credit card processing follows the same algorithm as in offline stores, with one exception: the POS terminal is replaced by a payment gateway. While a simple software solution may be sufficient for a small business, larger companies must think of card processing optimization.

How to Improve Card Processing in E-commerce?

So how does merchant processing work for companies that deal with online trade? As the popularity of online stores grows alongside the trading volumes, the need for smart solutions arises. Therefore, an E-commerce gateway is worth implementing. Such a payment gateway features the following:

  • Multi-acquirer approach. This means creating a unified network of acquirers that offer payment processing coverage worldwide using Intelligent Transaction Routing (ITR). A multi-acquirer approach will provide additional autonomy, control over the processes, and an increase in the conversion rate.
  • Machine learning balancing system. Using a smart traffic balancing system is a game-changer if your project is dealing with multiple acquiring banks. It will collect the information and analyze the processing success to route transactions to the processor with the highest efficiency.
  • Reliable anti-fraud system. Introducing a multi-stage anti-fraud system is of utmost importance for risk management and consumer safety, as it will block fraudulent transactions based on customizable criteria.

How Can Payneteasy Help?

At Payneteasy, we strive to provide users with intelligent custom solutions. As a business owner, you are sure to appreciate the benefits we offer, such as:

  • Fast and easy integration
  • Full technical support
  • Flexible software to match any payment interaction
  • Solutions tailored to your specific needs
  • Extra-strong fraud prevention systems
  • User-friendly back office
  • Branded checkout page
  • Efficient traffic routing system

Throughout the years, our company has been demonstrating an unparalleled level of service and a high customer satisfaction rate. Our white label payment gateway solution is exactly what your business needs to level up credit card processing. Tell us about your project, and we will get back to you with a personalized offer within a day!

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