From swiping your credit card at the merchant (shopping mall or a supermarket) to receiving a message which says a particular transaction has been done using your credit card, there are more than a couple of processes that take place, involving different parties, each doing their jobs to make sure the entire process happens in a matter of seconds.

If you’re keen to know how the money, which actually doesn’t exist in your credit card, transverses through various payments gateways, processors, banks and finally reaches the merchant’s bank account, while simultaneously getting debited from your credit card account, the guide below will help you understand it better.

You will definitely find some interesting facts about credit card processing and various parties involved in the process.

How Credit Card Processing Works – Step by Step Guide
Step-1: Cardholder uses the credit card to make a payment either at a point of sale (POS) terminal or at an e-commerce website.

If it is a POS terminal, which is nothing but the cash counter at a retail store, you will find a card reader. Your card will be swiped to fetch the information. In e-commerce websites, where you cannot physically use your card, the merchant uses a payment gateway to collect the information.

Popular payment gateways in India include PayPal, Square, Stripe, which typically manage complex routing of data on behalf of the merchant and authorise e-commerce transactions.

Step-2: The card reader or the payment gateway then pass the transaction information through a secure connection to the payment processor

Step-3: The payment processor, which is responsible for collecting and transmitting information to other stages, sends the payment information to credit card network with which the card is associated. The popular credit card networks are Visa, American Express and MasterCard.

Step-4: The card network then passes the information to the customer’s bank- the bank which issued the credit card. It is also called issuing bank.

Step-5: The issuing bank upon receiving the payment request, verifies the availability of sufficient funds in the customer’s account to process the purchase. It also checks whether the purchase is legitimate or not. Once it finds appropriate funds and verifies that the purchase is not fraudulent, it sends a message, either approved or declined, back to the credit card network.

In case the bank finds insufficient funds in the account or the credit limit on the card has been reached or when the purchase is not legitimate, it declines the transaction.

Step-6: The card network transmits the authorisation response to the payment processor which in turn forwards the same to the payment gateway or the card reader.

The authorisation response will then be displayed on the card reader or on the e-commerce website. Once the transaction gets approved, the merchant will deliver the goods to the customer.

Step-7: All the approved authorisations or credit card payments will be submitted by the merchant in a batch via its payment processor to the acquiring bank or merchant bank for settlement.

The merchant bank processes credit card payments on behalf of the merchant. They offer a merchant account and exchange funds with the credit card issuing banks. They are responsible for depositing funds to the merchant’s account after deducting the related fees.

Step-8: Once the merchant bank receives daily card payments from the retailer, it raises a request to the credit card issuing bank for batch settlement

Step-9: The credit card provider then makes a settlement payment to the merchant bank on the following day

Step-10: Once the merchant bank receives the amount it will deduct a certain amount towards interchange fee, acquirer fee and the like from the actual amount and deposit the remaining to the merchant’s account on the same day or on the following day. This process is called settlement and typically takes 2-3 business days.

Glossary of Credit Card Processing terms
You might have come across many new terms while trying to understand credit card processing. To make it easy for you here is a brief definition of all such terms.

Point-of-sale (POS) terminal: A POS terminal is a physical set up at brick-and-mortar stores, which typically includes a card reader to process debit/credit card payments.

Payment gateway: A payment gateway is a software that transmits transaction information from a payment portal such as an e-commerce website to bank’s processor and authorisation responses from the credit card issuing banks to the payment portal. It usually facilitates communication between the banks.

Payment processor: A payment processor acts as a connection between merchants and the issuing bank. Besides securing payment data and transmitting it to other parties, it also ensures that all transactions adhere to the Payment Card Industry Data Security Standard (PCI DSS) guidelines.

Credit card network: Credit card networks or association work with payment processors to facilitate communication between merchant and issuing bank. They are also responsible to set interchange and assessment fees.

Visa, Master card, American Express and Discover are the popular credit card networks.

Issuing bank: Issuing bank is a bank or financial institution that provides credit card to the customer.

Acquiring bank: An acquiring bank is a bank or financial institution that accepts credit card transactions of a card holder. It is registered with a card network and accepts transactions on the network on behalf of merchants. Some banks also serve as processors. They provide the merchants with card readers and other equipment required to accept credit cards.

Check Credit Card Processing Fee
Credit card processing fee is a fee charged by payment processors to process a particular credit card transaction. The fee is typically charged to the merchant who uses the payment processing services.

Typically set by credit card networks, the credit card processing fee varies from one service provider to another based on the card network it is associated with.

The processing fee charged to a particular retailer also depends on various factors such as credit card processing method. If you are using a card-present processing method such as a card reader, you will be charged less compared to a card-not-present processing method such as e-commerce sites.

Credit Card Payment Gateway
For e-commerce sites, payments gateways are quite essential as they play a crucial role in credit card processing. By securely transmitting crucial information between issuing banks and acquiring banks, they protect the sensitive data from fraudulent parties.

Security plays an integral role in the functioning of gateways as crucial data such as credit card numbers and PINs pass through them to various other parties. To ensure right practices, gateways follow the rules and security standards set by the card networks.

There are a host of payment gateway providers in India including PayuMoney, CC Avenue, PayU, RazorPay, Cashfree, Paypal, EBS, Coinbase, Citrus Payments, Airpay, GoCoin, BitPay, 2Checkout, PayDollar, Lay Buy, G2APay, MasterCard Payment Gateway Services and the like.

Payment Gateway Fee for Credit Card Processing
The payment gateways charge a variety of fee to the online merchant. Some are fixed, some are one time and others are recurring. Let us see various fees levied by the payment gateway providers.

Discount fee: Discount fee or discount rate is a fee charged by the payment gateway to process a transaction. It is typically a percentage of the payment processed, hence varies from one transaction to the other. The discount rates vary from 1.5% to 3.5% depending on the type of credit card and mode of payment.
The discount fee is typically shared between multiple parties involved in the credit card transaction including issuing bank, acquiring bank and gateway services provider.

One time set-up fee: This is an initial fee to be paid while signing up for a payment gateway provider. It is a single time fee and will be levied for integrating the payment gateway software within the online portal.
Maintenance fee: It is a pre-decided fee that needs to be paid either monthly or yearly to the service provider by the online merchant. The fee may vary depending on the services opted by the merchant. Some additional services offered by payment gateways include risk management, fraud management and other services which attract an additional fee.
Popular Payment Gateways in India
Mentioned below are five popular payment gateway providers in India.

CCAvenue:CCAvenue is one of the oldest and largest payment gateways providing end-to-end e-commerce solutions to merchants across industries. It offers more than 200 payment options supporting more than 50 net banking, 98 debit cards, 48 banks IMPS, 16 prepaid instruments, seven credit cards and ATM cards. It is being used by most popular e-commerce sites such as Snapdeal.

Other features offered by the provider include multiple currency processing, iFrame integration, smart dynamic routing and mobile payments.

Looking for a free credit card processor? At ZeroPoint, Our merchants are the reason we exist We understand the complex nature of running a business. We know at the end of the day we are all trying to what is best for our company and customers. Credit card processing is an overly complex system designed to confuse to the point of giving up trying to understand. At ZeroPoint we make it easy to accept credit cards with he best and most user-friendly Point of Sale, Credit Card Terminals, and Gateways for online orders. Having a safe and secure credit card processor that makes the entire process from start to finish easy and secure is what ZeroPoint strives to achieve every day.


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