How Does Merchant Credit Card Processing Work?

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How Does Merchant Credit Card Processing Work?

Merchant credit card processing, or payment processing, is the system and set of procedures that allow businesses to accept and process credit card payments from customers. It involves several parties and steps to facilitate secure and efficient transactions. 

Here’s a brief overview of how the process works:

  • A Customer Makes a Purchase: The process begins when a customer makes a purchase with their credit card. The customer provides the credit card information, including the card number, expiration date, and sometimes a CVV (Card Verification Value) code.
  • Merchant's Point of Sale (POS) System or Payment Gateway: Next, the merchant uses a point of sale (POS) system or an online payment gateway to initiate the payment transaction. This system securely collects the customer's payment information and collects essential transaction details. The POS system or payment gateway then sends an authorization request to the merchant's payment processor, which acts as an intermediary between the merchant and the card networks (e.g., Visa, Mastercard).
  • Routing to Card Network: Next, the payment processor routes the authorization request to the appropriate card network. The card network then forwards the authorization request to the cardholder's issuing bank, which reviews the authorization request and determines whether the customer has sufficient credit or funds for the transaction. The bank also checks for any fraud alerts or holds on the card.
  • Authorization Response: The issuing bank responds to the authorization request with a response of “approved” or “denied.”
  • Merchant Receives Authorization Response: The authorization response (either approval or decline) is sent back to the merchant via the payment processor.
  • Transaction Completion: If the authorization is approved, the merchant completes the transaction. This may involve processing the payment at a physical point of sale (swiping, inserting, or tapping the card) or confirming the payment online for e-commerce transactions.
  • Settlement and Funding: At the end of each business day, the approved transactions are accumulated into a batch. The payment processor sends this batch to the acquiring bank (the merchant's bank), which then credits the merchant's account with the transaction amount minus processing fees.

Merchant credit card processing like we provide here at Seamless Chex is designed to be a secure and efficient way for businesses to accept payments from customers using credit cards, whether at a physical store, online, or through other sales channels. It allows businesses to offer convenient payment options to customers while adhering to industry standards and regulations for data security and payment processing.

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