How Credit Card Payment Processing Works: Lesson 1 - The Primary Steps of an Electronic Transaction

Although the benefits of credit cards are straightforward, the ecosystem of electronic payment processing is not. This can be especially daunting for a new or mature business or nonprofit organization, in the early stages of credit card acceptance. Payway has created an eBook that provides a basic understanding of the players and how the electronic payment ecosystem works. The knowledge it provides will empower you to ask the right questions of potential payment processing partners. The following excerpt provides a quick overview of the four primary steps of the credit card processing journey.

Step 1: The Payment

When a Customer uses a credit card to pay for your goods or services, or make a donation, the transaction must be authorized by the bank that issued the credit card. This ensures that credit is available to the cardholder and that the purchase amount is within the cardholder's credit limit.

Step 2: Batching

At the end of each day, Merchants batch and send captured credit card transactions through the Processor to their Merchant Provider for deposit. The Payment Gateway will automate this process behind the scenes.

Step 3: Clearing

The Merchant Provider accepts the deposit(s) from the Processor and forwards them to the Card Networks. The Card Networks then distribute the transactions to the corresponding Issuer. The Issuer debits the amount of the transaction from the cardholder's account.

Step 4: Funding / Settlement

The issuing banks send the card payments back through the Network to the Merchant Provider, who then transfers the payments to the appropriate Merchant's account. The funds are typically available within 24 to 48 hours.

Want to Understand More?

OK, so now you have the basic process down. Next you need to understand who the players are, as well as a few other key pieces of information. You know that you're the merchant, but what is a payment gateway, a merchant provider? We invite you to download our complete eBook below to learn more.


Download Our Complimentary Guide to Smart Credit Card Processing. Download now.


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