When a customer swipes, dips, taps or enters their credit card information into a merchant’s card terminal, website or mobile app, those details are then sent to a payment processor, or acquirer. The acquirer then communicates with the card network and issuing bank to authorize and settle the transaction for the merchant. This process is typically completed in a few seconds, but can take longer for disputed transactions or chargebacks.
The fees associated with merchant service providers credit card processing can add up quickly. As such, it’s important for businesses to understand how debit and credit card payments are processed so they can be prepared to compare pricing models from different vendors.
What is a Merchant Transaction?
When you swipe, dip or enter your credit or debit card at a point of sale (POS) device, or enter your payment details on a website or mobile app, your transaction is “sent to the system” via a credit card terminal or computer chip reader. Depending on the technology, these devices may read an entire magnetic strip or only a small part of it. They may also be able to read the card’s unique account number, expiration date, cardholder name and other data elements.
From there, the card information is routed to the merchant’s acquirer or credit card processing company (also known as a processor) via a secure communication channel called a payment gateway. The acquirer and the payment processor communicate back and forth with the card network, issuing banks and acquiring banks to approve or decline each purchase request. In most cases, these parties are separate entities, but some omnichannel providers such as Clover provide both the merchant acquirer and the payment processor in a single service provider solution.