Merchant Account Credit Card Processing: Understand the Process

Transactions seem seamless when it comes to merchant account credit card processing, but there are several things that go on behind the scenes. The following is a quick breakdown of the the credit card process:

Who’s Involved?

Anytime a card is presented at a merchant for payment, a computer terminal connects with the card issuers bank and determines if the funds are available. If the funds are available then an approval code is given to the merchant directly from the card issuer, and the card issuer then sends the money to the merchants credit acceptance account. So there are several different parties involved; the cardholder, the bank that issued the card, the merchant, and the bank that handles the merchants transactions. All of this happens in a matter of seconds.

Authorization Process

Regardless of whether you are making a purchase via the internet, or purchasing items in a large established corporation, when the card is swiped or the numbers entered the terminal transmits information through the dedicated phone line. The bank that processes the transaction through the terminal then sends all the card information to the actual card issuer, and the issuer sends back authorization. The authorization only serves as a temporary transaction. Some companies are able to post the transaction amount immediately, but most often this authorization serves as a place holder until the entire process is completed.

Approvals and Denials

Once the merchants credit processor sends the information through the terminal, the issuing bank will send a message either approving or denying the transaction. If a transaction is denied, the authorization may still stay in place for a few days, meaning this amount can still be pulled from your line of credit. Just because a credit card company sends a denial does not necessarily mean the funds are not available. A denial can also be issued if there is a problem with the verification process, if there has been activity the card company considers suspicious, or even if the bank just needs to update customer information. Since most often a denial will trigger a phone call from the customer, many customer service related issues can trigger a denial.


Once the merchant has received the authorization and approval codes, the payment process begins. The card issuer sends the payment almost immediately to the merchants credit card processor. The credit card processor then pays the merchant. The whole process generally takes less than three days depending on the card company.

Charge Backs and Disputes

Many people assume when they receive their bill that it must be paid before the merchant is paid. This is a common misconception. Generally by the time you receive your credit card statement the merchant has been paid. This means if you file a dispute over a transaction the credit card company has to go back to the merchant to try to get their money back. The card company will charge their merchant account for any charge backs, or open disputes, that a customer may file. This is why the dispute process can be a lengthy and time consuming.

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