The basics of credit and debit card processing

According to the United States Census Bureau, there are nearly 1.5 BILLION credit cards in use in the United States, and debit cards are increasingly quickly in popularity as well. So it stands to reason that payment acceptance by credit and debit cards is vitally important for business growth.

The question is, “How do you set up credit and debit card processing? How exactly does it work?” First of all, you need to set up an Internet merchant account, which handles online payment processing of credit cards, including MasterCard®, Visa®, American Express®, and Discover®.

Once you have a merchant account set up, everything else is pretty much straightforward especially if you took your account from a credit card processing service such as Pathfinder®. When a cardholder pays for a purchase with a credit card or debit card, the transaction information passes through our secure gateway.

The processor, acting on behalf of the merchant account, submits the transaction to the card network (such as Visa or MasterCard) electronically. In turn, the transaction is routed to the bank that issued the card to the consumer. The issuing bank approves or declines the transaction based on the cardholder’s available credit or funds, and passes the results back to the card network, which then relays the results to the processor. The whole routing takes mere minutes.

How it works:

Bankcard Processing 101 - How it works

The processor stores all your authorized transactions in “batches”, which are sent to the card network at the end of the day. That card network routes each transaction to the issuing bank and then sends the appropriate funds from all cardholders’ accounts into the merchant’s bank account.

This action, which is referred to as “settlement,” typically takes two to four business days from the time of original purchase. If the purchase has been made using a debit card, the funds are debited from the consumer’s account by the card association when they are sent to the merchant’s bank. Until that point, the transaction places an “authorization hold” on the consumer’s account.

It all works together seamlessly, and you typically can access the money within mere days of the transaction. It’s truly fast and easy.


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