HomeCredit CardsEverything You Need to Know About Credit Card Payment Process

Everything You Need to Know About Credit Card Payment Process

Swiping your credit card makes purchases smooth and swift, as long as you haven’t maxed out on your card. The only thing you need to worry about regarding the credit card payment procedure is whether you can make the monthly payment on or before the due date.

credit card payment process

Credit Card Transaction Fee

For merchants, accepting credit card payments can be different. While transactions are authorised immediately, they don’t receive the funds in their account. Besides, they have to pay the processing fee, which usually ranges between 1.5% and 3.5% or even more. It’s the merchant that has to pay the processing fee for every card transaction to receive payments.

The exact processing fee on a transaction depends on several variables – size and type of transactions, and overall volume. Both individuals and businesses should examine the exact details before they apply for credit cards or select merchant service providers.

However, the processing fee is pre-set and has two components interchange fee that is paid to the issuer of the credit card and the assessment fee that goes to the network.

Merchant Service Providers

A merchant that accepts credit card payments doesn’t directly interact with the credit card issuer or the network but with a Merchant Service Provider (MSP) that processes the credit card transaction. They act as an intermediary between the merchant on the one hand and the issuer of the credit card and the advantages credit card network on the other hand.

This service can be provided by the bank or financial institutions with which the merchant has a banking relationship. A business’s processing fee may also include the fees for merchant services. So, businesses must ensure they are working with the most cost-effective MSP.

Key Players in the Credit Card Transaction Process

Now it brings us to understand what goes behind the scene. When a consumer pays with a credit card, the process involves authorisation and settlement of the payment, which in turn involves the following key players:

  1. Cardholder: It’s the consumer who has a credit card and chooses to carry out the transaction with the help of the card.
  2. Merchant: It’s a business that accepts credit card payments from consumers. For this purpose, it maintains a merchant account with its bank and the necessary equipment (PoS) or software (Payment gateway) to process credit card transactions.
  3. Acquiring Bank: The bank with which the business has a merchant account. And this bank is also a registered member of card networks such as Visa and MasterCard. It provides merchants with equipment and software to process consumer credit card payments.
  4. Issuing Bank: The bank or financial institution providing consumers with credit cards.
  5. Card Networks: Visa, MasterCard, American Express, and other card networks act as custodians and clearing houses for the brands of cards they support. Before apply for credit card, check which network it supports and what competitive advantage it offers.

Credit Card Transaction Process

When a consumer pays through a card, the transaction details are transmitted to the acquiring bank, the card network and the issuing bank. If the card has sufficient balance, the issuing bank will authorise the transaction, and the network will transmit the message to the acquiring bank.

In most cases, the authorisation process takes place within two to three seconds. The next stage is the settlement between the merchant bank and the issuing bank may take one to three days as several such transactions are usually netted off and sent for settlements once every day before a hard cut-off time.

The processing fee is also deducted by the respective service providers – chiefly, issuing bank, merchant bank, and card network.

Costs Involved in Credit Card Processing

Credit card payment processing cost has three components: processing fees, assessment fees, and interchange fees that go to the payment processor, which is acquiring bank, card network, and the card issuer, respectively.

The payment processor provides the PoS equipment or software for e-commerce integration and charges a percentage of the transaction and a flat monthly fee. The card network charges a fixed percentage of the transaction, varying from one network to another. The card issuer also charges a percentage of the transaction and a flat monthly fee.

Deduction of Fees

While credit card payments will be credited to the merchants’ bank accounts daily, the processing fee can be deducted daily or monthly, whichever option the merchant chooses.

In the case of daily deduction of the processing fee, the amount deposited in the merchants’ accounts is net after the deductions. The funds are deposited daily in the monthly processing fee, but they are gross; the processing fee is deducted at the end of the month.


Although it may not appear when you apply for credit card or make credit card payments, the credit card payment process is quite elaborate. It’s more so for merchants. However, the beauty of the system is that it’s swift and accurate even when billions of transactions occur daily.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.