How Credit Card Transaction Processing Works?


As a merchant, you are required to sign up for an account with different credit card payment processing companies. It is important that your business selects one that matches the size of your company. Furthermore, you should consider choosing a processor that offers various tools and reporting features. These will allow your employees to track sales, organize inventory and complete daily tasks quickly and easily.

Once you have signed up for a merchant account, you can begin accepting payments through credit card or debit cards at your business location(s). You will need to sign up with each credit card transaction processing company that processes transactions for the specific types of cards your customers use. For example, you would sign up with American Express if your customers use American Express cards, Visa if your customers use Visa cards, MasterCard if they pay with MasterCard, etc.

Once you are signed up for merchant accounts with several credit card processing companies, you can choose to accept transactions through devices such as a PIN pad terminal or by manually entering the information on your computer. To process transactions, you will need to swipe a customers card through a machine that reads the information from the magnetic strip. If your customers sign for purchases, you can also use a signature pad terminal or your computer to record their signatures.

After swiping the credit card, the credit card processor routes the payment information received from your business location back to the issuer of the customer’s card. The issuer then verifies that the customer has sufficient funds available on their account and approves or declines the request. If the purchase is approved, the credit card processor will settle the charge with the merchant’s bank and then deposit the money into your business bank account.

The entire process of a customer making a purchase with a credit or debit card takes a few seconds, much less time than when writing a check. Whether you process transactions manually or use a terminal, it is important to note that the payment authorization will immediately be sent to the issuer for approval. However, settlement will not occur until your bank opens its daily transaction batch window.

The only way to guarantee that a customer’s funds are available when the credit card issuer verifies that they have sufficient money in their account is to wait until your bank batch window opens. Otherwise, you either risk having the charge declined if the customer does not have enough money in their account or running into overdraft fees from your bank if there aren’t enough funds in your account to cover the transaction.

To find out when your bank batch window opens, contact your bank directly or ask your credit card processing company. Each merchant is set up with its own specific business hours depending on the needs of their customers and employees. For example, if you operate a retail store or restaurant that does not close for lunch or dinner, it is likely that you will process transactions outside of your bank’s normal business hours. This means the settlement timing and funds availability for each transaction will vary depending on when your customers use their credit or debit cards to make purchases.

Merchant accounts are set up by your credit card processing company so that they automatically default to accepting all valid charges. If you have any questions about a charge or feel that a customer is attempting to commit fraud, you can contact your credit card processing company for assistance.

Most merchant account service providers offer both a phone and online support system that is available 24 hours a day, 7 days a week. Fraudulent charges are typically caught by the credit card processing company before they go through, greatly reducing the amount of chargebacks you may incur.

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About the Author: Peter Beaumont

Peter Beaumont is a senior reporter on Daily Mid Time Global Development desk. He has reported extensively from conflict zones including Africa, the Balkans and the Middle East and is the author of The Secret Life of War: Journeys Through Modern Conflict. Email: