While it only takes the customer a matter of seconds to complete a purchase, it may take dozens of actions using technology to complete a credit card purchase until the receipt prints. Customers use their credit cards to purchase and pay for products or services. But, when the customer swipes their card, taps their card, or makes an online payment, there are very many factors behind the scenes that are working together as one system, in real-time, to process a transaction. Everything that happens from the moment a customer swipes their card until they have the receipt, referred to as the credit card transaction process, is a description of the journey that occurs.
Understanding how the credit card transaction process works is an interesting fact for businesses. However, it can provide businesses the ability to enhance the payment efficiencies, reduce processing issues, and improve customer service levels. This is true whether the transaction occurs in a store, online, via recurring billing or through telephone. All items must go through a predefined pathway before the payment to your business is processed.
By knowing how the credit card transaction process works, businesses will have the information needed to make smarter payment decisions, select better technology, and provide faster, more secure payments.
What is the Credit Card Transaction Process
When someone makes a payment using a credit card, there are several events that happen together between several companies to enable approval and processing of the payment transaction.
Initial Transaction
The customer initiates the payment by tapping, inserting, swiping or entering their credit card information into a secure payment device.
Authorization
The credit card transaction will be securely sent via the payment processor to the customer’s credit card issuer bank to verify that the card is valid for the transaction. As well as, verify that sufficient funds are available to complete the transaction.
Approval
Once the bank has authenticated the transaction, the authorization is sent back via the payment network to the merchant and the transaction is approved. If there is a problem, the transaction may be declined.
Settlement and Funding
When you authorize a transaction, it gets compiled together with other approved settlements for that same transaction and sent to the processor. Once the approval has been made for all of the transactions, they will then be sent to the payment processor for actual settlement. The processor will process the funds from the cardholder, through the cardholder’s bank, to the merchant’s account, in accordance with the payments processor’s policies for merchant accounts.
Different Types of Credit Card Transactions
People often use their credit cards to pay for items. However, the method in which they complete these transactions varies depending on how the transaction is occurring.
- POS transactions
- Repeating transactions such as monthly subscription memberships
- Telephone transactions processed via a virtual terminal
- Mobile payment methods such as Apple Pay, Google Pay, and other digital wallets.
Having multiple options for paying allows customers to have more flexibility. It also allows businesses to create additional revenue streams from all of their sales channels.
The Role of Payment Gateways and Payment Processors
A payment gateway and a payment processor are both equally important for facilitating credit card transactions. However, they fulfill different roles when facilitating payment with a credit card.
A payment gateway encrypts and sends the customer’s payment information to the payment processor for processing. A payment gateway is especially important for facilitating credit card payments through an e-commerce website, online invoices, or virtual terminal.
The payment processor and the payment gateway work together to allow businesses to accept payments securely. From, credit cards, ecommerce, and in-person sales.
Without reliable and efficient processors & gateways, it wouldn’t be possible for merchants to quickly and securely process electronic payments.
Benefits of Understanding the Credit Card Transaction Process
Learning about the mechanics of credit card transactions allow business owners to make better choices when selecting their payment options.
Businesses that grasp how payments are processed have the ability to minimize transaction errors, increase reporting accuracy, and identify ways to reduce their costs. In addition, they are more comfortable when they have problems to solve or when answering customers’ inquiries.
Finally, the more that a business knows about payment processing, the more capable it is at selecting payment solutions that will integrate well with other systems. Such as, accounting systems, POS software, e-commerce platforms, and automated accounts receivable systems.
Chargebacks and Payment Security
A credit card chargeback is a measure to protect consumers against fraud or unauthorized purchases. Chargebacks can be expensive for businesses if there are too many.
With robust payment security, the likelihood of a data breach from an insecure payment is significantly reduced, as is the potential for chargebacks. Payment security technologies such as EMV chips, tokenization of cards, and monitoring fraud provide enhanced protection to merchants and consumers.
Merchants must also clearly define their refund policies, keep detailed records of all transactions, and appropriately respond to customers timely. In order to resolve any issues before a chargeback is filed.
What the Future of the Credit Card Transaction Process Looks Like
With advances in payment technology, both consumers and businesses are looking for new ways to speed up to offer more flexibility for paying and accepting payments.
Now, there are multiple transaction types available, such as contactless payments, mobile wallets, recurring billing, and digital invoicing as well as integrated payments across many industries. Many companies now also use smarter reporting and automated processes that operate through the cloud to help alleviate the amount of work it takes to transact business.
As technology continues to grow, the credit card transaction process will grow in three areas. That being, becoming nearly impossible to hack, being much faster than their present capabilities, and making both businesses and consumers’ lives easier by providing more data regarding each transaction.
Why Choose Gulf Management Systems
One of the most important things when choosing your payment partner is understanding the entire credit card transaction process. Our secure payment solutions allow businesses to process payments more easily while automating day-to-day operations.
Using technologies provided by Gulf Management Systems, businesses have the ability to accept different types of payments anywhere that they are located. Whether that is at a physical location, through a website, a mobile device, etc. All payment data is accurately processed, with an integrated reporting option.
We offer full-service payment processing options for businesses, including:
- Credit and debit card transactions
- Online payment gateway
- POS processing
- ACH
- Direct deposit
- Electronic check
- Virtual terminals
- Mobile and contactless payment options
GMS designs its payment processing technologies to help businesses implement secure, scalable, and sustainable systems. These solutions ensure long-term viability by combining flexibility, sound packaging, and robust security measures.
