Many people think that credit card processing is a complicated process and, to be honest, we can’t blame them.
From conflicting information online to complicated contracts and service agreements there’s a lot of confusion about how exactly credit card processing works and why it’s important.
In this post, we’re going to break down the key steps that happen when you swipe a card or enter a credit card number so that it’s easy to know what’s happening behind the scenes.
1. A purchase begins
Whether it’s a CNP (card-not-present) transaction, where a merchant enters a credit card number by hand, or one where a credit card is swiped, at the moment it happens, a transaction has started! The information enters the system and then …
2. The information is moved to the processor
Once the card information is entered (online, by phone or swiped in person), the information gets sent to the processor (Like Tidal Commerce!) and they handle the next few steps of the process.
3. The processor asks for authorization
Now that the processor has the information for the transaction they can determine which bank to ask for authorization. If the card is a Visa®, for example, the processor submits a request to Visa making sure that the customer has enough funds to cover the cost.
4. The issuing bank says “yes” or “no”
At this point, Visa checks the purchase. If the customer wants to buy something for $100 and Visa sees that they have the funds available in their account, they essentially give the processor a “thumbs up,” approving the transaction. If the customer does not have the available funds, they give the “thumbs down.”
5. The processor relays the answer
Now that the processor has the answer, they send that answer back along to the merchant.
6. The merchant finishes the transaction
If the merchant receives the “thumbs down” or “no” answer, they will politely let the customer know that their card has been declined and ask for another method of payment. If they receive a “yes” answer, then the transaction is complete and the customer has successfully made a payment.
It may seem like a lot of steps for a simple transaction but it goes very quickly as anyone who has ever purchased something with a credit card will know. Every time you swipe your card, this same dance repeats itself from merchant to processor to bank and back again.
