How Does Credit Card Payment Processing System Work

How Does Credit Card Payment Processing System Work

Wondering how does credit card payment processing system work? Here is a short overview of how this system works and the important steps required for a successful transaction!

Each electronic transaction is a process between merchants, cardholders, and lots of intermediaries. This process is repeated hundreds of times a day, all over the world. Without a reliable and secure system for processing payments and transmitting payment information, a business can’t function.

In this article, we will discuss credit card payment processors and how these processing system work.

There are a lot of different players involved in the process:

    • The Merchant: The business or company that sells products online. When the merchant receives credit card information, they process the payment securely and efficiently. All merchants have unique identification numbers that ensure reliability and security throughout the whole process.
    • The Buyer: This is the individual who enters or swipes credit cards and purchases the products you are selling.
    • The Acquirer: The merchant pays a certain fee to the acquirer to route the payment transaction to the right parties. The acquirer is usually a bank or other financial institution. They provide merchants with the hardware and software required to accept payment cards.
    • The Issuer: Known as issuing bank, this player manages credit card accounts on behalf of the buyer. For example, they extend lines of credit, notify customers for purchases they make, and more.
    • The Association Network: The network serves as a backer for issuers and acquirers, as well as, their customers. They ensure that transactions are processed on time, set guidelines, negotiate disputes between parties to transactions processed using their networks, and more.

So, how do all parties and players execute their processes?


Every successful transaction includes a few important steps:

  • Authorization: This process ensures the buyer has enough funds to complete a transaction.
  • Batching: Once authorization is complete, the customer has no role in the process. The merchant stores payment information for each transaction. A set of stored transaction is called a batch.
  • Clearing: Once the acquirer has the batch, the process of clearing starts.
  • Funding: This is the final part where the merchant receives funding for the transaction made.

Having a credit card payment processing system to help you with this process is important. You can focus on running your business and leave the rest to the system and other players involved.

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