How card payment transactions work
Parties involved in a card payment transaction
A credit or debit card transaction involves several steps. Depending on the payment card network, the transaction may involve 3 or 4 parties in addition to the network itself.
In a four-party model, the parties include the:
- customer making the purchase
- merchant
- payment card processing service provider
- financial institution that issued the card to the customer making the purchase
For some networks with a three-party model, the payment processor and the card issuer are the same company.
Card payment transaction steps
- You, as a merchant, show the total cost to the customer onscreen, or on a device or payment terminal.
- The customer uses a physical payment card or a payment card in a digital wallet to pay. For online or mobile payments, they may need to enter additional security information.
- Your payment processing system sends the transaction information to your card payment processor. This includes the amount and the card details.
- The card payment processor sends the purchase details to the customer’s card issuer. They do this through the payment card network for the card used by the customer. The card issuer checks if the customer has enough funds or credit available for a card payment.
- The customer’s card issuer approves or declines the transaction. It sends this decision back to you through the payment card network. A confirmation or approval message appears for you and the customer on the terminal or online payment platform.
- This transaction will be grouped by your terminal, device, or platform, with other transactions usually made during a business day. Then it will be sent to your payment card processor to begin the settlement process.
- The settlement process involves the payment card processor making a request for funds through the applicable payment card network to the card issuers. The card issuers then send the requested funds to your payment card processor to complete this process. Some payment card processors give the merchant the full amount first and take their fees later. Others do the opposite.
Card payment transaction fees
The fees that you pay to card processors may vary. They depend on the type of agreement or plan between you and your card payment processor.
Under a flat or blended rate plan, you may pay a flat fee for all card payment transactions.
If you’re not on a flat or blended rate plan you may pay fees that vary depending on:
- payment card brand
- card type, like premium or standard
- transaction type
Your flat or blended rate plan may also change based on these factors.
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