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Comprehensive Guide to Credit Card Processing

Boaz Gam

Boaz Gam

CEO

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Average rating: 4.8
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26.08.2021
6 min

What Is Credit Card Processing System And How It Works

Article content
  1. How Does Credit Card Processing Work?
  2. Parties Involved in Credit Card Processing
  3. Main Steps of Credit Card Processing
  4. In-Store Credit Card Processing
  5. How to Optimize the Process?
  6. Credit Card Processing in E-Commerce
  7. How to Improve Card Processing in E-commerce?
  8. 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 businesses 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 of a business accepting payments entails, it is vital to know which entities participate in it.

Parties Involved in Credit Card Processing

What Is Credit Card Processing System And How It Works

Behind a seemingly simple purchasing process, there is a complex system of cooperating services, 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 business establishments process payments made with credit cards.

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.

Such a procedure of processing credit cards only takes a few seconds. Depending on the seller's bank, the type of credit card, and the payment system used, a business may be charged a commission during the transaction.

In-Store Credit Card Processing

What Is Credit Card Processing System And How It Works

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 business 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 payments, 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 businesses 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 regarding the payments and software.

Credit Card Processing in E-Commerce

What Is Credit Card Processing System And How It Works

In e-commerce business, the processing of credit cards 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 company, larger businesses must think of card processing optimization.

How to Improve Card Processing in E-commerce?

So how does the processing of credit cards work for businesses 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?

Forget about dealing with issues caused by slow or failed credit card transactions and outdated software. At Payneteasy, we strive to provide users with intelligent custom solutions for improved processing of payments.

As a business owner, you are sure to appreciate the services 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 the processing of credit cards. Tell us about your project, and we will get back to you with a personalized offer within a day!

Commentaries 4

Daniel L

You mentioned a “strong anti-fraud protection” as part of your offer. How does it work exactly? Best regards. Daniel.

What Is Credit Card Processing System And How It Works Boaz Gam

Hi, Daniel, it’s a great question, actually! We do provide a bunch of measures to prevent fraud and scam tied to the payment processing. And here’s how it works.
We offer a turn-key processing system, which encompasses such security standards as KYC and PCI DSS.
These standards help to identify fraud and create a safe environment for both you and your clients. (Keeping the payment process quick and easy at the same time).
Did you know that false chargebacks cost merchants an extra $2.40 per one reimbursed dollar? And we can prevent this. It’s something to think about, especially if you run a small business.

Nicole L.

What you describe in your review sounds nice, but I’m not quite getting it: how does this card processing stuff helps me do my business better? Nicole L.

What Is Credit Card Processing System And How It Works Boaz Gam

HI Nicole and thank you for contacting us!
Okay, here’s the deal. Payment processing is a complicated mechanism. And it involves a whole bunch of participants. So what if something goes wrong in this intricate mechanism?
Here’s when our processing system comes into play. Among all else, we offer the Multi-acquirer Approach! It makes sure that processing works worldwide in different time zones like a clock.
So, you’ll be “insured” in case your acquiring bank goes defunct for some time. Plus, our system makes sure that customers can pay with e-wallets, as well as credit and debit cards.
It also supervises authorization process to prevent fraud, which is ideal for a small business.

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