Credit Card Payment Processing 101

Kat Tretina

Updated On: July 13, 2023  •  3 Minute Read

Credit Cards, Financial Tips

Credit cards are such a common part of our daily lives. You likely use your card several times a day: at the gas pump, at the grocery store, or even online to buy household essentials. Credit cards make it easy! You just swipe your card and you’re on your way.

But have you ever thought about how credit card payment processing works? It’s actually a very complex process involving many different players. Here’s everything you need to know about credit card payment processing.

What is credit card payment processing?

In short, payment processing is how payments and transactions are electronically automated between the seller and the customer. Payment technologies and credit card companies process, verify, and accept credit card transactions through their systems.

Who is involved with payment processing?

When you make a purchase with your credit card, you’re buying an item directly from a retailer. But, that doesn’t mean that only the two of you are involved in the transaction. In fact, there are many different parties that take part in payment processing.

• Customer: The customer is you, the consumer, who is buying an item or paying for a service.
• Merchant: Whether a small shop owner or a major retailer, the merchant is the party selling goods or offering services.
• Processor: Credit card processors are companies that charge merchants a fee to facilitate the transaction. They are responsible for making sure the transaction is secure and complete.
• Card network: The card networks — such as Visa®, Mastercard®, or Discover® — work with the card processors to communicate between the bank and the merchant. The card network also sets interchange fees, or fees they charge merchants for processing credit and debit card payments.
• Consumer Bank: The consumer bank is the one you use as a customer. It’s the bank that issued you your credit card. For example, if you have a Capital One Venture Rewards Credit Card, your consumer bank is Capital One. This is who you make payments to when your statement is due.

*Information for this card is not reviewed by or provided by Capital One

How are payments processed?

While the payment process is simple on your end, there are several steps that happen to complete a transaction:

1. You hand your card to the retailer or swipe it at the register to pay for your transaction.
2. The merchant accepts and collects payment information through a card reader or an online payment system.
3. The credit card processor receives information from the merchant and routes that information to the card network.
4. The card network takes that information and directs it to your consumer bank.
5. The consumer bank verifies the transaction and sees if you have enough funding available (if it’s a debit card) or a large enough credit line (if it’s a credit card) to complete the sale. If you do, they allow the transaction to go through.
6. The merchant receives a notification that your transaction is approved or denied.

How it affects you

For the most part, credit card payment processing a seamless process. As a customer, it’s unlikely you’ll ever even notice the different steps happening. There’s only a handful of times when there’s hiccups with the process that can affect you.

• Insufficient funds: For example, if your consumer bank finds that you have maxed out your credit card, they’ll deny your transaction. If that happens, the merchant will inform you that your transaction was denied, and you’ll need to use another payment method.
• Fraudulent purchases: The consumer bank may find that the transaction is fraudulent, such as if a transaction is requested in another state. If that happens, they’ll flag it as an unauthorized use and deny the transaction and alert you.
• Unaccepted network: Unfortunately, not all retailers accept credit cards from every network. If you have a Discover or American Express card, for example, you may find that some merchants don’t take them, and you’ll have to use another payment method.

Now that you know all about how credit card payment processing works, you can be an informed consumer. It’s always a good idea to have more than one credit card in your wallet in case of an emergency; if your card is declined, or the merchant doesn’t accept a card network, you’ll have a backup ready. Looking for a new credit card? Check out the best cards of 2023.