Comprehensive Guide to Credit Card Processing


The popularity of credit cards as a payment tool is reaching new heights in the contemporary era. There are more players in the credit card domain, offering a wide range of customised credit card products.

Comprehensive Guide to Credit Card Processing

Owning a credit card is no more a luxury. However, one has to meet the eligibility criteria set by credit card companies. Over the past decade, credit card companies have added exponentially to their customer base by offering lucrative deals and rewards. In addition, there are different loyalty programs to keep customers satisfied and drive more purchases.

Credit cards are widely accepted on both online and offline platforms. Providing more payment options certainly works in the best interest of all merchants, and credit card is a widely preferred payment mode. One of the biggest reasons is that people don’t have to worry about their account balance.

They can easily spend the pre-defined limit available on their cards. From the outside, paying through a credit card seems easy. All you need to do is swipe or tap the card. However, a lot goes into the backend to process your payments. Let’s deep dive to understand the other side of a credit card payment, i.e., credit card processing.

Understanding The Concept Of Payment Processing

Before we jump into the specifics of credit card processing, let’s understand the concept of payment processing. Payment processing entails a series of operations required to process the payments initiated by customers at a merchant outlet. There are five main parties involved in payment processing: the payment processor (mediator), the customer’s financial institution, the payment gateway, the merchant and the customer. The merchant submits a transaction request with the payment gateway whenever a customer initiates a payment. Now, the payment gateway is responsible for securely sending the transaction details to a processor, which verifies it and gets approval from the customer’s bank.

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How Does Credit Card Payment Processing Work?

Credit card payment processing is a complex web on the inside. Multiple parties are involved in the payment processing whenever a user initiates a transaction. The parties involved here include the cardholder, the card issuing institution, the merchant, the payment gateway, the card network, the merchant’s bank and the payment processor. The payment gateway software act as a connecting link between the merchant and the payment processor. The payment processor is responsible for mediating between the card issuing institution, the merchant and the card network.

The Role Of Card Networks In Credit Card Payment Processing

Credit card networks are different from the card issuing companies. The credit card networks are responsible for processing and approving transactions using a credit card. They are the connecting link between the merchant and the bank. A card network also determines the acceptability of a credit card at a given outlet. When a transaction is initiated, the payment processors are not responsible for directly connecting with the financial institutions. Instead, they forward the details to the card networks, who verify it from respective financial institutions. Kotak Bank, HDFC and SBI are some of the most popular card networks in the world.

Expenses Involved In Credit Card Processing

Most people are unaware of the expenses involved in processing credit card transactions. Learning about the fees can help customers and merchants make better choices. Since multiple parties are involved in completing a transaction, there are different expenses related to credit card payment processing. Some of the most prominent ones are listed below.

  • Payment Processor Fee

Payment processors are responsible for mediating between the payment gateway and the card networks. They charge different fees for their services, including fees per transaction, monthly charges, equipment lease fares, etc. There are various processor pricing models such as flat rate, subscription, tiered and interchange plus. Merchants can make a pick as per their liking.

  • Interchange Fee

The merchant or acquirer has to bear the interchange fee whenever you transact using a credit card. The card issuer charges it for each transaction. It can vary greatly depending on the payment amount, merchant’s industry, type of card, etc.

  • Assessment Fee

The assessment fee is charged to the merchant directly by the credit card network involved in processing the payment. The assessment and interchange fees are collectively known as “swipe fees”.

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Credit Card Payment Processing Timeline

As we already know, multiple parties are involved in credit card transaction processing, and it takes some time to settle the accounts. Most credit card transactions typically take around 48 hours to settle. However, it can take anywhere between 24 to 72 hours to approve and settle credit card payments.

Merchants working directly with payment processors must wait a little longer to receive funds in their accounts. This happens because payment processors sort and release payments in batches. The payment timeline for merchants varies on multiple factors, including the credit card issuing company, the time when a transaction was initiated and the method of credit card payment used.

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