Tap, swipe or dip is all that meets the eye during credit card payments but there’s more to the back-end of each transaction.
Different parties take part, each with their unique role in a multi-step process that ensures the approval and safe transfer of payments from a buyer’s credit card to the seller´s merchant account in a matter of seconds.
How Payment Processing Works
When a customer chooses to pay with a credit card, multiple steps happen automatically to authorize and finish the transaction.
The payment processing process must involve the following parties
- Payment Processing Company
- Payment Gateway
- Credit card firm or bank
- Merchant account or Business Bank
During each card payment, the credit card info is verified, and balance checked then accepted or denied, payment is then processed and finances transferred.
A Step-by-step Guide to Payment Processing
1. Point of Sale/Purchase
The point of purchase has to do with the payment collection point or checkout area where a customer makes a payment.
In a physical store, they include hardware like Point-of-Sale (POS) terminals, while checkout pages and order forms accomplish the same role in eCommerce.
POS systems combine hardware & software that help merchants accept payments, monitor inventory, among other vital roles.
This is also the point where the shopper chooses their preferred payment avenue, as well as a credit card like MasterCard, a digital wallet or eCommerce payments or debit card.
2. Payment Gateway
The payment gateway is the tech that creates a secure connection to encode credit card data. It then routes the data securely to the payment processor who prompts the issuing bank to transfer finances.
The payment gateway confirms a card’s legitimacy while safeguarding the disclosure of personally noticeable data during a payment.
As soon as a Cardowner (customer) pays, the card details pass through a Payment gateway to the payment processor, which then routes it to the issuing bank that approves the charge.
As soon as the card-issuing bank verifies a transaction, the payment processor receives a code which it sends to the payment gateway.
A confirmation message is sent to the customer and merchant when the payment is complete.
3. Payment Processor
Payment processors play a critical role in routing information from customers’ issuing banks to sellers´ merchant accounts, where the funds enter.
Their primary job is to confirm card security and initiate the movement of funds from the issuing bank to the business’ merchant account.
The merchant account acts as the temporary reservoir for credit card payments until the business owner chooses to move these finances to an official business account
4. Issuing Bank
The issuing bank is the financial firm behind your customer’s credit card. It holds the funds that reflect in a card and will only move funds for an approved payment.
Author Bio: Payment industry guru Taylor Cole is a passionate payments expert who understands the complex world of handepay reviews. He also writes non-fiction, on subjects ranging from personal finance to stocks to cryptopay. He enjoys eating pie with ice-cream on his backyard porch, as should all right-thinking people.