How Does Payment Processing Work?
A credit card transaction appears straightforward at first glance, however, there are several other factors at play. A number of electronic processes take place to finalize the transaction when you use a credit or debit card to make a purchase. A single card transaction involves the processing, verification, acceptance, or denial of a payment as well as the transfer of funds.
What occurs once you make a purchase? Let's take the payment process for a simple fast food order of a burger, shake, and fries as an example.
Step 1: Engaging the POS.
When you place your order, the cashier informs you of the amount and asks for your form of payment. You are currently at the point of sale. This can be done online or in person. You could be keying in your information if you're ordering anything for delivery. Cash, checks, money orders, debit or credit cards, and other payment options are all accepted at the time of sale.
Even more customers are making in-person and online transactions nowadays utilizing digital payment methods. The number of cashless payment transactions worldwide is anticipated to rise from 1 trillion to 1.9 trillion between 2020 and 2025, according to fresh forecasts from PwC.
Step 2: Connecting to a payment gateway.
A payment gateway serves to safely link data received from a customer's bank through the payment processor to the merchant's account. When you submit your payment details for your meal, the payment gateway notifies you if your payment was accepted or declined. However, the processor manages the transaction by smoothly obtaining card information (credit card or debit card) from the customer's issuing bank to send to the merchant account.
Step 3: Delivering information to a payment processor
As the name indicates, processors process data from the issuing bank of a credit card user to the merchant’s account.
Step 4: Confirm payment with the issuing bank.
The issuing bank is a financial institution associated with a customer’s credit card. Such as Chase, BofA, Wells Fargo, and the banks we all know and see on the street. The payment processor validates card security and facilitates the transfer of payment, moving money from the issuing bank to the merchant account.
Step 6: Getting the merchant paid
The payment processing business makes it possible for money to go from the issuing bank to the merchant account when a credit card transaction is processed and accepted. A company may take digital payments, debit cards, and credit cards thanks to this bank account.
This entire process happens rapidly, between the time you place your order and the moment your receipt is handed to you or emailed to you. Before you know it, you’re sitting down to enjoy your meal.