Now, this is an automated process, so it is usually handled overnight. In the past, settlement and funding were manually processed, which meant that it took days to resolve each batch. That charge is sent back from the issuing bank to the card association and finally to the merchant bank, where it is deposited into the merchant’s account. The card associations share the batch information and communicate with the issuing banks, who then charge the cardholder’s account for the appropriate amount. Some larger organizations send batches more frequently to reduce batch size and prevent potential delays. Typically this batch includes every authorized payment from a single business day. This is done through something known as settlement and funding.Īfter authorization, a merchant will use their payment processor to send a large batch of authorized transactions to a card association. Now that the payment has been authorized, the merchant can transfer the funds. The entire authorization process typically only takes a few seconds to complete. If the issuing bank approves the authorization attempt, an approval is sent through the payment processor to the card association, back to the merchant bank, and finally back to the merchant.
They can also choose to decline authorization if there are signs of fraud, identity theft, or if there are insufficient funds in the cardholder’s account. Issuing banks will decline authorization attempts if the information is invalid, expired, or inaccurate. The card information is shared with the issuing bank. This is called authorization.ĭuring this authorization process, the merchant’s card reader contacts the merchant’s payment processor with a request for payment authorization-the payment processor contacts the appropriate card associations, which connect to the issuing bank. They connect merchants, merchant banks, issuing banks, and card networks together while managing the entire payment process.Īfter the cardholder presents the credit card to the merchant, the card is either swiped, inserted, or tapped against a secure terminal to verify the card and approve the potential transaction.
Card Associations-These are the companies that issue credit and debit cards.Merchant Bank-A merchant bank is a bank the merchant uses to process the payment.This can be anything from a local credit union to a large global bank. Issuing Bank-The issuing bank is the cardholder’s financial institution to pay for a good or service.Below are several of the key institutions that work behind the scenes to process credit or debit card payments. The customer and merchant aren’t the only players involved in a credit card transaction. While the credit card transaction process may seem to take place instantaneously, a lot happens behind the scenes to ensure the payment is accurate and delivered on time.ĭiscover who is involved in each step of the credit card transaction process and how payment processing works. Registered Payment Facilitation Services.Government Consumer Engagement Solutions.
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