Before your business makes decisions about accepting credit cards and direct debit payments, it’s helpful to learn how the credit card transaction processing works. This guide will help you understand who the key players are and how they interact to connect you with your customers, whether you do business in a brick-and-mortar location or online. Here’s how the whole process works to bring you closer together for a successful payment experience.


The Key Players


Every business decision involves key players. Even though choosing a small business payment solution isn’t a game, it does take some strategy. Knowing the key players helps you make the right decision for your business.




Although this may seem self-explanatory, the cardholder is worth mentioning because this is the player your business is trying to attract — the customer or client. The cardholder is the person who initiates the transaction and pays for the product or service your business offers.




The merchant is the vendor or store selling the product or service to the cardholder — so, basically you. As the business, you, the merchant, accept credit card paymentsfrom cardholders by sending cardholder information and requesting payment authorization.


Acquiring Bank


This is the merchant’s bank, aka, your bank. Your bank is the key player responsible for requesting and receiving payment from the cardholder’s bank through the appropriate channels.


Acquiring Processor


Sometimes called a service provider, the acquiring processor is a third-party entity that provides the device or service that lets you, as the merchant:

  • Accept credit cards and debit cards
  • Send payment details to the credit card network
  • Forward payment authorization to your bank


Credit Card Network


Also known as Association Members, these are the entities that operate the credit card payment processing networks globally. They govern interchange fees and are a major player in the transaction process. Some of the largest and most influential credit card networks are Visa, MasterCard and American Express. Any type of card you accept is one of your credit card networks.


Issuing Bank


Issuing banks, or Credit Card Issuers, are simply the financial institutions that issue the credit card to the cardholder. This entity receives payment authorization requests and then approves or declines the transactions. This is your customer’s or client’s card issuer.





The Transaction Process


Payment technology has reduced the amount of time it takes for the credit card transaction processing to complete. Even though the process can happen in a matter of seconds, it’s still important to know what’s taking place during those few seconds and afterward. There are three stages in the transaction process.


1. Authorization


First, your customer submits a credit card for payment. This can be done by swiping the card at a point of sale (POS) terminal or by entering the card information on your website or payment portal.

The credit card information is then sent to the acquiring bank, usually through an acquiring processor, via the internet connection.

The credit card information is forwarded to the credit card network. For example, if the credit or debit card shows the Visa symbol, the card information is forwarded to the Visa network. The credit card network uses this information to clear payment and request payment authorization from the cardholder’s issuing bank. The information includes the credit card:

  • Number
  • Expiration date
  • Billing address
  • Security code
  • Payment amount


2. Authentication


In the next stage, the payment authorization request is sent from the credit card network to the issuing bank to verify the validity of the credit card. The issuing bank has the responsibility to validate the:

  • Credit card number
  • Amount of available funds
  • Billing address as a match to the address on file
  • Security code

The issuing bank then approves or declines the transaction. The response is routed through the credit card network to the processor and finally back to the acquiring bank. Upon receiving the authorization, the issuing bank places a hold on the cardholder’s account for the amount in the payment authorization request. The POS terminal or website payment service then collects the authorization which will be processed in the “batch,” usually at the end of the business day. You, as the merchant, produce a receipt for your customer. This can be a POS terminal print-out or an email confirmation.


3. Clearing and Settlement


When the payment is cleared, it’s posted to both your merchant bank account statement and the cardholder’s bank statements. This is the part of the transaction process that can take more than a few seconds. Here’s why.

For the payment to clear, you have to send the batch of approved authorizations to your bank. When a processor is used, the batch will be routed through the processor first and then through the credit card network before the authorizations reach your customer’s or client’s bank. The issuing bank receives the authorizations and, within 24-48 hours, transfers the approved funds to the credit card network, minus the interchange fee charged by the credit card network.

The credit card network then pays your bank and processor their respective percentages from the funds that remain. Your account is then credited by the acquiring bank. The transaction is finalized, or settled, when the customer’s bank finally posts the transaction information to the cardholder’s account.

Accepting direct debit payments and credit card payments isn’t as difficult as it sounds, but it does include a series of very directed and precise processes. To tailor a payment solution that best fits your business, contact IntegraPay to discuss our full-featured APIs that will seamlessly integrate with your payment processing software.