Detailed Guide to Understand Credit Card Process

Your credit card in actual does not have any money but still when you make a transaction through any payment gateway, it gets processed and reaches the merchant’s bank account and also gets debited from your credit card.

Have you ever wondered how does this process takes place, then here is a detailed guide for understanding how to apply for credit card process? You are surely going to find some interesting facts about how the credit card process actually takes place.

Step by Step guide to Credit Card Process

Step-1 You use the card either at point of sale terminal or an e-commerce website. At POS terminal your card is physically swiped through a card reader whereas on e-commerce website your card information is used to make payment through a payment gateway like PayPal, Stripe, which manages the typical data on behalf of the merchant.

Step-2 The information collected by card reader or payment gateway is passed to payment processor through a secured connection.

Step-3 The payment processor sends the information to the credit card network with which the particular card is associated like Visa, MasterCard, and American Express.

Step-4The card network passes the information to the issuing bank which issued the particular credit card.

Step-5 The issuing bank verifies the availability of funds, and whether the purchase is legitimate or not. After verification, it sends the message either approved or decline to the credit card network.

Step-6 Authorisation response is transmitted by card network to the payment processor and it forwards the same to the card reader or payment gateway. This result in the authorization response getting displayed on the card reader or e-commerce website and the transaction getting approved.

Step-7 The approved authorization is submitted by the merchant to acquiring bank through its payment processor.

Step-8 After receiving the daily card payments from the retailer the merchant bank raises a request to the credit card issuing bank for making the settlement.

Step-9 After receiving the request the issuing bank makes the payment to the merchant bank on the next day.

Step-10 Merchant bank deducts a certain amount as acquirer fee, interchange fee from the amount received from issuing bank and then deposits the rest of amount to merchant’s bank account by the next working day.

Credit Card Processing Fee

The fee which is charged by payment processors for processing a particular transaction of credit card is called processing fee. This fee is charged to the merchant which uses the payment processing services. This fee is typically set by credit card networks and it varies from one provider to another.

Even the credit card processing method plays a role in defining the processing fee charged to a retailer. Use of credit card reader attracts less fee as compared to transactions made on an e-commerce website.

Payment Gateway Fee for Processing of Credit Card

The various fee charged by payment gateway providers are:

  • Discount Fee:

    This is levied by the payment gateway for processing transaction. It is usually a certain percentage of the amount processed, mostly from 1.5%-3.5% depending on payment mode and card type. Although it is typically gets shared among issuing bank, acquiring bank and payment gateway.

  • One time set-up fee:

    While signing up for payment gateway provider this fee is paid. For integrating the software of payment gateway into an online website this fee is paid.

  • Maintenance Fee:

    This fee is paid by the online merchant to service provider periodically every month or yearly on the basis of mutual agreement. Merchant pay as per services opted, like fraud management, risk management services.

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Divya Kapoor
I’m Divya Kapoor a Finance professor with an MBA in Finance. I’m working in the finance sector for over 5–6 years. I like to guide more people because it’s an easy path to get success by sharing your knowledge with others. Sometimes You don’t know about particular topic….that time we learn a lot of new topics.

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