Initiating the Transaction: When a customer decides to make a purchase using their credit card, they provide the necessary card details to the merchant. This typically includes the 16-digit card number, the expiration date, and the three-digit security code (CVV/CVC) located on the back of the card. This information is essential for processing the payment securely.

Authorization Request: Once the merchant obtains the customer's credit card information, the payment process begins. In brick-and-mortar stores, the cashier or the point-of-sale (POS) terminal will initiate the transaction by entering the card details or by swiping/dipping the card into the terminal. For online transactions, the customer enters the card details in the checkout form, which is securely transmitted to the payment gateway.

Forwarding to the Issuing Bank: After the payment information is entered, the credit card processor comes into play. It acts as an intermediary, relaying the authorization request to the appropriate credit card network based on the type of card used (Visa, Mastercard, American Express, etc.). The credit card network, in turn, forwards the request to the customer's issuing bank.

Issuing Bank's Response: Upon receiving the authorization request, the issuing bank begins a series of checks to ensure the legitimacy of the transaction. It verifies the customer's account status, credit limit, and any potential fraud indicators. The bank may also check the customer's transaction history for suspicious patterns. These security measures help protect both the customer and the merchant from unauthorized transactions.

Authorization Approval or Decline: Based on the checks performed, the issuing bank sends an authorization response back to the credit card network. If the transaction is approved, the response contains an authorization code, indicating that the funds are available and that the purchase is authorized. If the transaction is declined, the response includes a reason for the decline, such as insufficient funds, incorrect card information, or potential fraud concerns.

Merchant's Response: The credit card processor receives the authorization response from the issuing bank. If the transaction is approved, the processor communicates the authorization code back to the merchant's payment terminal or website. The merchant's system then displays a confirmation message to the customer, informing them that the payment was successful.

Transaction Settlement: Throughout the day, the merchant accumulates a batch of authorized transactions. At the end of the day or a predetermined settlement period, the merchant sends this batch of transactions to the credit card processor. The processor then forwards these batches to the respective credit card networks for settlement.

Clearing and Funding: The credit card networks distribute the authorized transactions to the respective issuing banks for clearing. During clearing, the funds for the approved transactions are transferred from the customer's credit account to the merchant's bank account. This process typically takes a few business days to complete, depending on the issuing bank and the credit card network's policies.

Payment Processor Fees: As part of the credit card processing service, the payment processor deducts its processing fees from the total amount of each transaction before depositing the remaining funds into the merchant's bank account. The fees vary based on the processor's pricing structure and the nature of the transaction (e.g., in-person, online, international, etc.).