How does credit card processing work?

 When a customer wants to purchase something from you, the first thing they do is pull out their credit card. The next thing you want them to do is swipe their card and sign it. If all goes well, the sale should go through fine and you make your money. Here we were talking about standard credit card processing where we use traditional merchant accounts. Nowadays, there are many companies that offer payment processing services for small businesses but still traditional merchant accounts provide the best results.

Let us start this article with standard credit card processing where customer swipes their card through your machine. Most of you will be using this method because it is cheap and easy to use, or simply because you are not aware of other options available. When the customer swipes their card, it goes through an electronic unit which reads all necessary information needed to process transactions. The machine also validates if the card is applicable for the transaction and whether it either has no chargeback or too many chargebacks registered against it.

Once the machine confirms that everything is valid, it sends the information through a private line to your acquiring bank for verification. After being verified by the credit card company, funds are transferred from the account of the customer to your merchant account. Your merchant account can be either with an acquirer or directly with a credit card company. The funds are held there until you transfer them into your business account or a separate savings account.

The acquirer is the company that provides the merchant services through their network of banks where your customers credit cards are issued from. It is necessary to have both benefactors, an acquirer and a bank because those transactions require two steps for them to complete successfully. In case you do not know, an acquirer is a company that offers payment processing services to the merchants through a network of banks.

A bank can provide both debit and credit payment processing but for this type of service, they issue prepaid cards because it does not involve any kind of borrowing or lending. Prepaid cards are very popular in many countries where people do not have access to credit or debit cards. Prepaid cards only allow the user to spend money that they already put on their card; plus, if ever there is an excess of funds, it can be easily refunded back to you.