Credit Card Flow — The Path of Data from Card Swipe to Payment

You press the 'pay' button, and within a couple of seconds, you receive an order confirmation. It’s a success! That’s the typical way most consumers perceive credit card transactions — essentially, they don’t really think about them at all. Whether it's an in-store, online, unattended, or embedded payment, the behind-the-scenes operations are inconsequential as long as it's simple and functional.

Here is an insight of the journey that a customer's card information, personal data, and funds traverse every time a purchase is made. In the end you will have a better understanding of how credit card payments function and how to enhance the purchasing experience for your customers.


The General Path of a Credit Card Payment
We'll commence with a broad overview of the processing steps and gradually delve into the details as we progress through the process.

Every credit card transaction generally undergoes five primary steps: submission, authorization, authentication, clearing, and settlement.

The interface for most consumers is a terminal, point of sale or a payment gateway is like a secret helper during card transactions, handling sensitive card information and sending it to banks for approval. It's crucial for both online and in-store payments.

The interface doesn’t just send data—it also protects it. It uses encryption to secure the information. Sometimes, extra security steps like 3DSecure are required before the transaction goes through.

Once secured, the interface sends the data to the acquiring bank, the card network, and the customer’s issuing bank. The acquiring bank is the merchant's link, the card network helps with rules and authorization, and the issuing bank evaluates and approves the transaction. It is worth noting that just because there is an approval does not guarantee the card is not fraudulent.

Finally, the issuing bank checks for available credit and approves or denies the transaction. The decision is then sent back through the network, and the process, from submission to approval, usually takes seconds. However, for the merchant and the banks, approval isn't the final step.


Clearing: Initiating the Movement of Funds
The initial stages determine if a transaction can proceed without any exchange of money occurring yet. The movement of funds happens in a separate process, starting when the merchant sends the accepted transaction for clearance.

Clearing involves the three parties—acquiring bank, card network, and issuing bank. It begins with merchants batching transactions together for submission. Typically, they send these batches once a day after business hours.

These batches are sent to the acquiring bank or payment processors. They can contain hundreds or thousands of transactions, which need to reach the right issuing banks for settlement. To manage this, the acquirer sends the batch to the card network, which sorts and routes each transaction to the respective bank for the final settlement.


Settlement: Funds Deposited in the Bank
Settlement involves the issuing bank deducting the amount from the cardholder's available credit and sending it to the card network, which transfers the funds to the acquirer. The acquirer then deposits the funds into the seller's merchant account, known as funding or settlement.

Unlike authorization that happens in seconds, clearing and funding usually take longer—around two to three business days. This delay, a standard hold in the industry, serves as an extra safety measure to prevent fraud and ensure financial security.

While a standard two-day delay is common, some payment processors offer faster funding services, granting brief credit to merchants until the settlement is complete.


In Summary
The entire payment process involves numerous intricate steps, often without a second thought by most consumers. However, when examined in detail, it's fascinating to comprehend the complexities behind the scenes of processing transactions when one realizes this takes place around 1.86 billion credit card transactions daily.

At First Coast Payments , our dedication lies in ensuring that a business will take payments quickly and smoothly so they can focus on their customers. We provide with seamless, cost-effective, and transparent payments, while the business will maximize payment revenues.

We are here to help you should you have questions this post or anything related to Point-of-Sale systems or credit card processing solutions. Call First Coast Payments at 904-638-8804!