Update: 9/18/2020 — We published the video How Credit Card Processing Works and it’s a newer, updated version of the transaction flow so if you haven’t seen that video be sure to check it out. The content of this post is still correct, the new video just goes into much more detail.

Knowing how your money electronically passes from your customer to your bank account is something you should know so understanding the merchant account transaction flow is important.

It helps in understanding things like batch deposit times, chargeback possibilities and how quickly you collect your money.

The “Players”

In the 3-10 seconds it takes to approve a credit card transaction lots of things happen.

There are multiple “players” involved and many different automatic actions taken between the swipe of the card and the approval code that’s given.

The main parties involved are:

• The cardholder (your customer)
• You (the merchant)
• Visa/Mastercard Association
• Acquirer or ISO/MSP (your processing company)
• Issuer (your customer’s credit card company)

When a customer presents a credit card for purchase at your business an approval code is given in a matter of seconds because of the transaction cycle that’s shown in the image.

Here’s the flow

Follow along as we walk through the steps of approval according to the “Transaction Flow Diagram” illustration.

For the 9 steps listed below I will refer to your role as “Merchant.” The steps are labeled in the diagram.

Step 1: Customer presents card to merchant for purchase of goods or service

Step 2: Merchant’s processing company sends out for electronic authorization to verify that funds are available

Step 3: The electronic request travels through payment processing networks (Visa/Mastercard)

Step 4: Issuing Bank approves (or declines) the transaction based on funds available

***Behind the scenes: The transaction passes back through the same parties with the approval code and delivers it to the point of sale technology at the merchant location

Step 5 & 6: Issuing bank sends money to the Acquiring bank (processing company) to reimburse them for the purchase that the consumer made

Step 7: Processing company deposits money into Merchant bank account

Step 8: Issuing bank (customer’s credit card company) bills the customer for the transaction

Step 9: Customer pays their credit card bill for the purchase made.

That’s how the money flows!

This transaction process takes place every time you run a transaction on behalf of and involving your business, acquirers, issuing banks and customers across the world.

Next time you run a transaction, you’ll know what’s happening behind the scenes!