How Do Credit Card Payments Work? A Behind-The-Scenes Look

How Do Credit Card Payments Work? A Behind-The-Scenes Look

The average number of credit cards Americans have is 2.35 cards. They carry an outstanding balance of about $5,551.

So many of us whip out a credit card and swipe when we make a purchase. But do we really understand what happens after that? Have you ever asked, how do credit card payments work?

Keep reading to learn what happens behind the scenes when a credit card purchase processes.

The Key Players

Let’s start with who the key players are. There are more than you, the merchant, and the card issuer.


This one should be obvious; it’s you. There are two types of people, those who pay their balance owed in full every month and those who only pay a portion while the rest accrue interest.


This is the store where you’re buying goods or services. They need your card information so they can receive payment.

Acquiring Bank

This would be the merchant’s bank that receives the payment. They’ll let the merchant know if payment is received.

Acquiring Processor

This processor is a third party that sometimes acts as a middleman between the acquiring bank and the issuing bank. It relays requests and forwards payments.

Credit Card Network

This is the network that your credit card operates on. You’re probably familiar with Visa, MasterCard, Discover, and American Express.

Issuing Bank

This is the bank that issued you the credit card. They need your authorization and will either approve or deny the transaction.

How Do Credit Card Payments Work?

There are three basic steps to processing a credit card transaction. Most merchants use a single payment portal so that their business central integration makes the entire process seamless.

Step 1: Authorize

At this stage, you present your card for payment and the merchant submits a request. To authorize the payment, the merchant must submit the following information:

  • Credit card number
  • Expiration date
  • Billing address
  • Security card
  • Total charged amount

Step 2: Authenticate

Before the charge gets approved, the issuing bank will authenticate the charge. Once the issuing bank verifies it’s a legitimate charge, they’ll send notice of approval. If not verified, it’ll deny the charge.

Once the merchant knows they’re authorized, a hold is placed on the card account. This signals the completed transaction, and the merchant will give you a receipt.

Step 3: Clear and Settle

The final stage of the process involves posting the charge to the account and having it listed on the cardholder’s monthly statement.

For a charge to post, merchants typically send approved authorizations in batches at the end of each business day. Their bank will then funnel those authorizations to the appropriate processor or issuing bank for settlement.

Know Before You Swipe

Now that you know the answer to how do credit card payments work, you’re ready to spend responsibly. The next time you swipe, think about all of the entities involved in making that single transaction happen.