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Find Out How Credit Card Processing Works

To appreciate the benefits of the use of credit card machine for your business, it helps to understand how credit card processing works. When you understand how the process works, you will be able to maximize the benefits you can get from the process and build a strong relationship with your customers.


A number of participants make up the transaction process from swipe to funding. Each of the participants plays a vital role in a successful transaction.

The basic participants are as follows: customers using their credit cards, merchants offering their products or services, the credit card terminal process, gateway or account service provider, the companies issuing credit cards to consumers, and merchant account providers.

Each participants has their role and function to play in the millions of transactions that occur ever second of every day.


There are generally three stages in the processing of credit card transactions:



Purchasing products or services by customers from your business

through the use of their credit cards


Securing the necessary authorization and approval of the transaction

as you swipe the credit card into the machine or virtual terminal


Processing the payment or sale and completing a successful transfer of

funds from the bank to your merchant account

What Happens

The transaction begins when your customers hand you their credit card for payment in exchange for the products or services you are selling.

As you swipe the credit card into your credit card machine, relevant information from your customer’s credit card such as account number is fed into the system to secure the necessary authorization for payment.

Your service provider electronically transmits the information to the credit card issuer to verify authorization, and once authorization is verified and received, alerts you to accept the credit card payment.

Upon acceptance of payment, the amount of purchase is deducted from your customers account and the credit card issuers transfer the same amount to your bank for deposit to your specific account – minus the discount rate. Simultaneous 2

to the transfer of funds, you release the items to your customers and the transaction is completed.

All these things happen within two (2) to three (3) seconds as technology of the









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Significance of Credit Card Processing

Credit card processing makes it convenient for both merchants and customers to do business, allowing secure payment in exchange for goods on the part of customers and acceptance of payment to release their goods on the part of merchants.

To start benefitting from the transaction process, customers must have a valid credit card or debit card with a sufficient available balance and merchants must have their own merchant accounts from their banks or work with a 3rd party provider.

Role and Functions of the Credit Card Machine

The credit card machine plays an important role in the transaction process. It is the main tool acting as a credit card reader and transmission service to complete the purchases.


Whether you use a physical terminal for point of sale or a virtual terminal system it will operate fundamentally the same, the information is transmitted and communicated between the credit card issuers and your bank for the processing of the fund transfer.

How credit card processing works with the credit card machine fulfilling its role is as follows:

The credit card machine reads the information contained in the card.

It does this as soon as the magnetic stripe on the card touches the machine’s card reader. This process takes place as you swipe the credit card onto the machine. It picks up and transmits the data to begin the verification process.

Basic information communicated from the credit card onto the machine includes your customers’ credit card number, name as well as security or verification codes. As the information enters the system, the credit card machine starts to transmit it to the concerned systems.

Transmission of information through the credit card machine is

handled by your preferred service provider. Depending on your setup and the type of credit card machine you use, you can transmit the information wirelessly or using dedicated phone lines or via a direct internet connection.

As the information is transmitted to the credit card issuer of your

customer, the machine awaits verification of authorization. This takes place in just


a few seconds. As the card issuer verifies the validity of the card and authorizes the amount, you will receive alerts that the payment is approved and accepted.

During the verification process, the software running the machine confirms three things: (1) your customer is the authorized cardholder; (2) the credit card is active; and (3) the cardholder has not gone beyond the credit card limit.


The credit card machine, upon approval of the payment, prints out two

(2) receipts – the signed receipt goes to you for your recording purposes, and the other goes to the customers as their proof of payment for the purchase.


At the end of the evening you are typically required to complete a

batch process in which you verify the days receipts and make any adjustments to the purchase amounts. The result is sent to begin the funding process.

How to Get Credit Card Processing Setup

It is easy to get credit card processing setup for your business.

The first step is to review and select a company that offers the benefits and features that will most propel your business forward. Not all processors are a good fit for every industry. Compare the rates and services provided before you make the leap and commit to a contractual commitment.

Your business may benefit from a point of sale terminal. 5

You may require a number of them to adequately supply your salesforce.

Processing terminals can be purchased or leased from the top credit card processing companies, or you can purchase them from a 3rd party and have them integrated with your system.

There are advantages and disadvantages for either choice, your particular business needs should guide your decision.

Do not be tempted to buy or rent a credit card machine loaded with features that are unnecessary for your business.

There is little need for a tricked out pony when a workhorse will do. Simple and effective is our recommended path when it comes to card payment machines.

Online, you will be able to compare companies or providers where you can purchase or rent your credit card machine. We recommend comparing at least three (3) offers which will help you determine what is best for your business needs and requirements.

Look for quality customer support services and positive customer feedback from real businesses that have worked with the processors you are considering.


Working with the best companies will save you many unnecessary headaches down the road.

There are many benefits from the use of credit card processing, it will increase sales for your business, save yourself and your staff time, and provide the utmost in payment convenience for your customers.

Knowing the basics of how credit card processing works will help you make an informed decision when you begin comparing services that will help your business begin accepting credit cards.

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How Credit Card Processing Works  
How Credit Card Processing Works  

A number of participants make up the transaction process from swipe to funding. Each of the participants plays a vital role in a successful...