How a payment transaction is processed
We're all accustomed to making both in-store and online transactions, but do we really know the back-end processes it takes to process a payment? The split-second that it takes to complete a transaction is actually much more complex than what meets the eye.
Keeping that in mind, here is a brief background of who's involved in the payment processing lifecycle and what it takes to complete a transaction:
A payment starts with a customer who's interested in buying a particular product or service from some type of retailer or merchant service. After that, there are four other parties involved:
- The merchant that's selling the product
- The payment processor that organizes the transaction
- Credit card brands like MasterCard and Visa
- Card issuers such as banks, credit unions or another financial institution
How does the payment get processed?
Here is a step-by-step outline of how a card-based transaction is processed:
- The customer gives his or her card to the merchant to pay for a product or manually swipes the card themselves.
- Once the card is swiped, the transaction request is sent to the merchant's payment processor partner
- The processor then sends the transaction request to the corresponding credit card brand
- The credit card company sends the transaction to the card issuer
- The issuer then approves or declines the transaction based on available funds