How are credit card payments processed?
Credit cards have made transacting safe, quick, and convenient. Though making a payment via a credit card takes just a few seconds, the entire payment processing chain is complex. In short, when you swipe or enter the credit card details to make a payment, the information is routed through the merchant’s processing company to the credit card network and finally to the issuing bank. On receiving such information, the bank either approves or rejects the transaction and sends the message in the reverse order to the merchant. But, all this happens in the blink of an eye!
Here is a step-wise illustration of how a credit card payment is processed so that you are better informed as a credit card user.
Step 1: Consumer
The first step of a credit card payment process begins with you. When you swipe your card or use it for online purchases, you give your credit card information such as the number, your name, PIN, and others to the merchant.
Step 2: Merchant
Depending on how you choose to pay, the merchant collects your credit card information via a specific medium. For instance, if you wish to swipe your card, the machine reads your information to pass it on to the next level. Conversely, if you make an online payment, the merchant collects your information via an online payment gateway.
Step 3: Processor
At this stage, a credit card processor joins the payment process. The processor is responsible for passing on your information from the merchant to the credit card network in a secure manner. The processor is also responsible for facilitating communication between various parties like the merchant and your credit card issuing bank.
Step 4: Card networks
All credit cards work via one or the other credit card network including VISA, MasterCard, American Express, and the like. At this stage, the processor passes your information to your credit card’s network, which routes it to the next level.
Step 5: Issuing bank
Now, your credit card issuer receives your merchant’s payment request and verifies the details. They also check whether you have available funds, so as to approve the transaction. In addition, to protect you from fraud, the issuer also conducts security checks to make sure that the payment request is legitimate.
If everything looks good and you have sufficient balance, the issuing bank passes on the approval message in the reverse order. First, it goes to the network, then the processor and finally the merchant.
Step 6: Approval
If your payment is approved, the card reader shows an ‘Approved’ message. If it is rejected, you can read a ‘Declined’ message. Accordingly, the merchant presents you a receipt. If you have initiated an online payment, you will see an approved or declined message on the screen of the medium that you are using.
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