A Day in the Life of a Credit Card Transaction

As a software platform provider that has payment processing capabilities or as a merchant in a credit card-driven marketplace, it is essential to understand the behind-the-scenes of a credit card transaction. Credit card transactions are a standard form of purchase across many demographics. From the moment the buyer swipes the card, many processes are set underway. Get a feel for a day in the life of a credit card transaction through this simple break-down of how credit card processing works.

The Relationship Between Buyer and Seller

In every credit card transaction, two key parties must exist. There must be a cardholder, called the buyer, and a seller, known as a merchant. The cardholder obtains a charge card from an issuing bank and presents it to a card-accepting merchant as a form of payment.

The Role of the Bankers

In addition to a cardholder and merchant, banks are also critical parties in how credit card processing works. Whether a credit card is used in-store or online, multiple banks come into play. First, there is the acquiring bank, commonly referred to as a merchant acquirer. The acquirer is the bank of the merchant and provides the essential back-end technology needed for processing. Additionally, they are responsible for depositing income into the merchant account after card sales are made.

On the other side of things, is the cardholder’s bank is known as the issuing bank. The issuing bank creates the cardholder account and collects payment for merchant transactions. Both the acquirer and the issuing bank must be registered members of the major card association to which they belong.

Major Card Associations

With credit and debit card transactions dominating the merchant payment arena, some business are opting to go cashless for efficiency. They depend solely on bringing-in consumers who carry cards with major card associations. The role of the card association is to set the guidelines for which banks will use and regulate card processing. They may act as a mediator between acquiring and issuing banks, and are responsible for brand growth and promotion. The most well-known card associations include,

• Visa
• Discover
• MasterCard

As a software provider that supports payment functionality, having a reliable processing platform is critical for secure and reliable payment processing. For a payments partner who knows how credit card processing works, turn to Paragon Payment Solutions.