Online Credit Card Processing

   
   
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How does credit card processing work?

Accept credit cards to pay for goods and services in all kinds of places these days—at a store or service counter, at a trade show or craft fair, over the phone or by mail, or on the Internet (at an online store). All these transactions involve four core steps:

  1. The customer presents a card or card information to a merchant, who then sends that information to a merchant services provider, or payment processor.
  2. The payment processor conveys the card information to the bank that issued the credit card;
  3. The issuing bank approves or declines the transaction, sending an approval number or notice of decline to the payment processor;
  4. Approved transactions are settled and funds are deposited into the merchant’s checking account.

 

Of course, there are additional steps depending on the environment. Read below for more details.

Retail (storefront) credit card processing
Online credit card processing
Phone/mail order credit card processing
Wi-Fi (wireless) credit card processing

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Retail (storefront) credit card processing

  • The customer presents a card or card information to a merchant, who then sends that information to a merchant services provider, or payment processor. Details:
    1. The merchant “swipes” the customer’s card through a terminal and enters the sale amount;
    2. The terminal connects to the payment processor.

  • The payment processor conveys the card information to the bank that issued the credit card. Details:
    1. The bank checks to see if the card is valid and whether the sale amount is available on the card.

  • The issuing bank approves or declines the transaction, sending an approval number or notice of decline to the payment processor. Details:
    1. The information is transmitted back to the terminal, and if it’s an approval, the customer signs a printed receipt or an electronic screen

    2. All this takes just seconds to complete on terminals using phone lines, even less on terminals using the Internet.

  • Approved transactions are settled and funds are deposited into the merchant’s checking account.
    1. A merchant must settle, or “batch out,” approved transactions by the end of the day; a merchant can do this manually or contract with a payment processor to automatically settle transactions at a certain time each day.

    2. After the settlement process begins, the issuing bank transfers funds and electronically deposits them into the merchant’s checking account.

    3. Funds are usually deposited into a merchant’s checking account no more than two days from the time of the original sale.