How Does Credit Card Processing Work?

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People have varying opinions about credit cards. They are certainly used by a lot of people as a means of either making or accepting payments for products and services. You can use these cards for business or personal purposes. Either way, it is worth familiarizing yourself with the process behind the transactions carried out using these cards. This article looks into the people involved in card transactions, how the cards are processed and what makes one card issuing company better than another.

The involved parties

The transaction takes place in two main stages—authorization and settlement—but more than one party takes part in the process, including the buyer, merchant, processing merchant, merchant’s bank and the issuing company.


You’re the buyer. As an individual or business owner, you own the card that you use to pay for products and services. The merchant is the business from which you buy products or services. The processing merchant is the business entity that collects money and sends it to the company or bank issuing the card. 

The card payment process

An effective way of understanding the process behind credit card transaction is to use a typical transaction as a sort of case study. Let us consider a scenario in which you purchased a meal at a restaurant using your local credit union card. You are the buyer in this case and the merchant is the restaurant. At the restaurant, you hand the cashier your card and they run it through the card payment machine. The machine transmits the details of the transaction to the card processing merchant that the restaurant uses to process all its card payments. The processing merchant, in turn, relays the information to the company or bank from which you got your card. If your account is in order, the card-issuing company or bank sends information authorizing the transaction back to the processing merchant. This information is then relayed to the restaurant’s bank, which approves the transaction and sends it to the restaurant, completing the process. All this happens seemingly instantaneously. 

The factors that set apart good credit card processing merchants

A variety of charges apply to the above process, including annual fees, transaction fees, activation fees, etc. As a business owner, look for a card processing company that delivers superior services at reasonable charges. You therefore need to put some thought into the company you hire and carry out adequate research of prospective companies before settling on one.

Identifying the most suitable processing merchant

Proper research is critical. Obtaining recommendations from business owners who have had success with their processing merchants is a strong way of identifying the right company. Complement this with an online search and make a short list of highly reputable, well-established processing merchants. Narrow down this list by doing a comparison of the fees each company charges. Once you have two or three good candidates, contact them and ask some follow-up questions to learn more about them. After considering additional factors, such as the quality of the company’s customer support, choose one that best fits the needs of your business.

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