How a Credit Card Transaction is Processed

It takes only a few seconds to scan your card and the transaction is completed and you are on your way home with a new pair of sneakers. However, in that few seconds, information passes swiftly from one party to another to get approval for your transaction. Here is how a credit card transaction is processed:


1. You produce your card to charge the purchase. The merchant scans your card.

2. A request is sent to the merchant’s bank for the transaction.

3. The merchant‘s bank sends another request to the issuing bank of your card to obtain authorization of the transaction.

4. An authorization code is sent to the merchant’s bank when the transaction is in order.

5. The merchant is notified and a slip is printed for the cardholder to sign and another slip is printed for the cardholder to keep. The transaction is completed successfully.

6. The merchant keeps the transaction and other transactions for the whole day and does a batch at the end of the day and transmits it to his bank for settlement

7. The batch is sent through the card network such as Visa or MasterCard to request payment from the issuing bank.

8. The issuing bank deducts a fee which is shared with the card network and transfers the balance of the amount charged through the network to the merchant’s bank.

9. The issuing bank debits the cardholder’s account for the full amount charged and obtains payment from the cardholder in due course.

10. The merchant receives the amount from his bank less a discount rate.


A simple transaction but a complicated way for the merchant to get it approved and finally receive the fund fewer charges (around 2%).