How Credit Card Processing Works

Many small businesses find it easy to offer their customers the option to pay with a credit card. It is important for business owners to also understand how credit card processing works. Here, we will let you know what happens when a customer uses a credit card to pay for your products and services.

How credit card processing companies work may seem confusing at first glance, but we’re here to clear all of that up for you. There are several parties involved in the process and fees you need to pay as a merchant to start accepting credit card payments for your business.

Credit card processing happens swiftly. Apart from a payment processor like National Retail Solutions, for example, your business has several parties and channels involved to make the payment process seamless.

The Cardholder: The customer who wants to purchase goods or services with their credit card. This person will apply for a credit card with a financial institution and be issued one accordingly.

The Merchant: This is the business selling the products and services. Agreement must be reached with a financial institution prior to accepting credit card payments.

The Acquiring Bank: The banking institution that’s associated with the business selling their goods and services. Revenue from credit card sales will be put into the business account. This provides the business with the equipment necessary to conduct credit card sales.

The Issuing Bank: The banking institution that has issued the credit card being used to the customer. The cost of the products and services purchased by the cardholder will be paid back with the agreement the cardholder will payback.

The Card Association: The major credit card company oversees the transaction (i.e. Visa, MasterCard, American Express, and Discover). These companies monitor the parties involved, create guidelines, and intervene if there’s a dispute.

All credit card transactions involve the above parties, as well as three stages: authorization, settlement, and funding.

Our authorization process begins when your customer presents their credit card as a form of payment. The authorization approval comes after the card is scanned. As your payment processing company sends these transactions to the card associations who then contact the issuing bank who charges the cardholder’s account.

The issuing bank can then send funds of the goods and services to the acquiring bank. This does not include the deducted interchange fees. Finally, the acquiring bank deposits the funds from the transaction into the account of that business, giving them the money from the sale.

At National Retail Solutions (NRS), NRS PAY makes credit card processing for small business easy, with two low-rate options, free equipment, no long-term contract and no early termination fee. If you’re not satisfied, you can cancel any time and return your card reader without any penalty. Plus, it’s the NRS PAY promise that you’ll never be hit with hidden fees or unpleasant surprises.