Understanding How Payment Processing Works
This article explains the payment processing journey, detailing each step from authorization to settlement. It covers key players including banks, card networks, and merchants, highlighting how transactions are securely approved and funds are transferred. Whether shopping online or in-store, understanding this process enhances knowledge of electronic payments' security and efficiency, making you more informed about how your card transactions are handled behind the scenes.
Have you ever wondered what happens behind the scenes when your card payment is approved or declined? Many people overlook the complex operations that enable smooth credit or debit card transactions. The Card Networks facilitate real-time payments, ensuring security and reliability for merchants, consumers, and financial institutions.
Below is an overview of the steps involved in processing electronic payments during a typical transaction.
Participants: Several entities take part in each payment request.
Customer: The individual using an authorized payment card.
Merchant: The store or business accepting payments for goods or services.
ISO/MSP: Companies like IpPay and Wells Fargo Merchant Services act on behalf of banks to facilitate card transactions for merchants.
Payment Terminal/Online Gateway: Devices or platforms used by merchants to communicate payment requests to the bank.
Authorization Network: The platform that approves or declines transactions during the process.
Settlement Network: Handles the transfer of funds between banks after approval.
Acquiring Bank: The bank that processes merchant transactions under their account.
Card Network: Organizations like Visa and MasterCard that issue cards and connect merchants to payment networks.
Issuing Bank: The bank that issues the customer’s card and manages repayment.
Processing a payment involves two key phases:
Authorization: An electronic request is sent for approval or denial of the payment.
Settlement: Funds are transferred, and accounts are balanced between involved parties.
This process occurs every time you use your card for a purchase.
