Merchant One Reviews How Credit Card Processing Works

A customer comes to the checkout counter in your store and sticks a credit card into the chip reader to pay for a purchase. The terminal displays a message saying, “Do Not Remove Card.” The terminal asks the customer to key in his or her PIN. The terminal shows the transaction approved or denied, and tells the customer to remove the card.

Or maybe your customer swipes the card and ends up with the same results. What’s happening from the time the customer inserts/swipes to the moment the payment is approved? It may seem like a simple process where the terminal sends the transaction to the credit card company, and the credit card company sends back the approval, but there are a lot of steps in between.

How the Process Works 

  1. The terminal sends transaction details to the payment processor. The payment processor is not the same as the bank that issued the card.
  2. The bank that issued the card belongs to a network of banks that issue the same kind of cards, like Visa or Mastercard. The payment processor gets the transaction details and sends them along to the card network. 
  3. The credit card network sends a request to the issuing bank to approve the payment. The issuing bank reviews the transaction to make sure the card hasn’t been reported as lost or stolen, is in good standing, and has sufficient credit. The bank then approves the transaction or denies it. 
  4. The bank sends the approval or denial back to the credit card network, and to the payment processor. 
  5. The payment processor sends notice to the merchant about whether the transaction is approved. 
  6. The bank sends the money to the payment processor, making sure to send the right amount. 
  7. The processor sends the money to the merchant’s bank account, again, making sure to send the correct amount. 

What Else You Need to Know


Now you know the basic steps, but there are other things involved, like how to keep your customers’ data secure during all this sending back and forth, and after the transaction is complete. Fraud protection is important as well, and you want to make sure any payment processor you choose has solid fraud protection tools.

Consider these other things as well when looking for a payment processor:

  • Is there an application or setup fee? 
  • What are the monthly and/or per swipe fees? 
  • What kind of technical support is available? 
  • Can the system keep track of gift/loyalty card programs? 
  • Can the system be used in text marketing? 
  • Can the system handle e-commerce and mobile apps? 
  • Does it have a secure vault for customers who want to store their information for recurring transactions? 
  • Does it have robust reporting tools? 
  • Not everyone uses cards—are check services available? 

Contact Merchant

One Merchant One has built up a set of services and tools from shopping cart integration and data security, to our QuickBooks plugin and robust APIs. If you’re looking for a payment processor who can handle everything from in-store purchases to e-commerce to a roadside stand or farmers’ market and craft show, take a look at Merchant One and request a free quote today.

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