When a customer uses his or her credit card through a tap, insert, or swipe method, the transaction seems to be almost instantaneous. In just a few moments, the transaction would either be accepted or rejected, and then the customer leaves. However, there is a complex system of technology involved in facilitating the transaction between the customer’s account and your business.
Knowing how this process works helps business owners understand how payments are processed.
Step 1: The Payment Is Captured
This process is initiated by inserting the credit/debit card or mobile payment options such as the Apple Pay or Google Pay into the system.
Payment terminals encrypt all the details related to the payment transaction and send it through your processor. This is done to ensure security of card holder information during authorization process.
Step 2: The Authorization Request
The money will be sent through the proper network for the credit card that is being used – Visa, Mastercard, Discover, or American Express, for example.
The network then passes the request to the bank that issued the customer’s credit card, where it will be checked to make sure the account is active and that there are sufficient funds or credit.
Step 3: Approval or Decline
Very quickly, the issuing bank communicates either an approval or a denial response via the card network all the way back to your payment terminal.
Upon an approval, the customer makes the purchase and gets a receipt. While the transaction is now authorized, the funds have not yet been deposited in your business banking account.
Step 4: Settlement and Funding
When the business day ends, all your transactions that have been authorized will be placed in a single batch and then processed for settlement.
The payment systems then transfer funds from one financial institution to another during the settlement process. Once processing is completed, the funds are credited to your business account through the processor’s funding cycle.
Security Protects Every Transaction
Every transaction undergoes several levels of encryptions and fraud checks. Current payment systems provide safety for businesses and clients by detecting suspicious transactions without exposing the card information.
All of these processes happen in the background without attracting any customer’s attention.
A Complex Process Made Simple
Even though there are many parties involved and complex technologies used in payment processing, the process for consumers is always easy and fast. Every step from authorization to funding is done to ensure secure and efficient transfer of money.
It is important to understand the process of payments for business owners to realize how important payment processing and its technology are.
