Who Processes Credit Card Transactions?

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The world of credit card processing may seem like a complicated process at first, but having the capacity to accept credit cards for your own business is simple to understand. However, it’s always a good idea to gain a general understanding of who processes credit card transactions and how it works overall. Here, you’ll be able to experience using advanced security technology, increase your sales, and even streamline payments.

For this reason, you will need to choose a credit card processing company – essential business partners that do more beyond processing payments. You don’t have to possess in-depth knowledge regarding the bankcard systems to find the most suitable credit card processor.

Credit Card Processing

Understanding the basics of credit card processing can help you identify how to obtain the best possible processing solution for you. In a nutshell, bankcard networks ferry billions of different transactions between processors, merchants, and banks. Within seconds, the transaction information is relayed to a processor, then to the card network and the issuing bank for pending approval. After this, the issuing bank sends authorization through the network, then the processor before it goes back to your software or terminal.

While this may seem like a simple yet involved process, getting authorization for a credit card transaction is merely the first step to the whole thing. Before anything else, you should first settle authorizations so sales will be deposited into your bank account. Basically, credit card transactions occur in a two-stage system that is made up of authorization and settlement. This is necessary since various fees tend to be incurred at each stage, and a small failure at either step can already lead to credit card sales not being deposited and even increased costs.

Who processes credit card transactions? Key Players

When discussing who processes credit card transaction, there are mainly five key players. These are the cardholder, the business, the acquiring bank, the issuing bank, and then the card associations.


If you possess a debit or a credit card, then you might already be familiar with the cardholder’s role. Particularly, a cardholder refers to someone who gets either a debit or credit bankcard from a card issuing bank. They then show this card at a business as a means of payment for services or goods.


A merchant is a business that sells services or goods. However, this article will focus more on merchants that accept credit cards as a payment method. With this context, a merchant is a business with a merchant account that allows them to accept cards as payment from its clients. As a business owner yourself, you are considered a merchant.

Acquiring Bank

Simply known as the merchant’s bank, these banks contract with merchants to make and maintain merchant accounts that allow their respective businesses to accept debit and credit cards. Moreover, they also provide merchants necessary software and equipment to accept card payments alongside other important aspects needed in card acceptance, such as customer service. Acquiring banks also deposit the funds from credit card sales into the merchant’s account.

Issuing Bank or Cardholder Bank

Like the acquiring bank, this one is also a part of the card associations (MasterCard and Visa) and issues credit cards to the consumers.

Here, they pay the acquiring banks for the cardholder’s purchases. This then makes it the responsibility of the cardholder to repay the issuing bank according to the terms of their credit agreement.

Card Associations

Card Associations like MasterCard are not banks and don’t provide credit cards or merchant accounts. Rather, they serve as a clearinghouse and custodian for their respective brands. Moreover, they function as the general governing body of certain financial institution communities that work hand in hand to support electronic payments and credit card processing.

Essentially, they act as the arbiter between acquiring banks and issuing banks while maintaining and improving the card’s brand and network while generating profit.

Who processes credit card transactions? 3 Step Process

Credit card processing undergoes three simple processes: authorization, settlement, and funding.

1. Authorization Process

In the authorization process, the cardholder shows their card to a merchant to purchase services or goods. Such a request may come from the point of sale system, a credit card terminal, or an eCommerce gateway either through in-app or mobile payment. After this, the merchant will send a request for authorization to the payment processor, which the processor then submits to the right card association to reach the issuing bank.

Necessary authorization requests are usually made to the issuing bank. This includes parameters like expiration date, CVV, and AVS validation. The issuing bank will then either decline or approve the situation and will send the status to the card association, the merchant bank, then the merchant.

2. Settlement and Funding

The process of settlement and funding is relatively simple.

Here, the merchants will send a bunch of authorized transactions to the appropriate payment processor. Then, the payment processor will relay the transaction details to the necessary card associations that will convey the right debits with the merchant’s bank in the network. In turn, the issuing bank will then charge the account of the cardholder according to the transaction amount.

3. Transfer to the merchant bank

Afterward, the issuing bank will transfer the required transaction funds to the merchant bank, minus the interchange fees. Finally, the merchant bank will now deposit the funds into the account of the merchant.

Who processes credit card transactions? Conclusion

Simply put, the credit card payment process involves the authorization, settlement, and funding process, which major key players operate on. The process is convenient since authorization only takes a few seconds, while settlement and funding can now be handled overnight instead of taking days to get done with. This helps you get your funds more quickly and more efficiently at the same time.

As a business owner, being able to accept credit cards as payment methods will make it easier for your customers to pay for the services and goods you offer. Not only that, but it will also help increase your boost profitability and cash flow.

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