How do payments work

In the middle are two technologies that enable you and your customer to transact. The second is the payment processor or merchant service , which does all the heavy lifting: moving the transaction through the processing network, sending you a billing statement, working with your bank, etc. Often, your merchant bank is also your payment processor, which helps simplify things. Your customer buys an item on your site with a credit or debit card. That information goes through the payment gateway, which encrypts the data to keep it private, and sends it to the payment processor.

The issuer responds with a yes an approval or a no a denial. The payment processor sends the answer back to you that the sale was approved and also tells your merchant bank to credit your account.

The card issuer sends the funds to your merchant bank, which deposits the money into your account. The funds are available. The contents of this site are provided for informational purposes only. Would you like to give more detail? Press Spacebar or Enter to select. Our use of cookies We use necessary cookies to make our site work for example, to manage your session.

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Skip to main content. Home KnowledgeBank How do card payments work? How do card payments work? How does paying for stuff work?

What about big payments? Why is the Bank of England involved in payments? Take a scroll…. Payment gateways usually charge those who use them a per-transaction fee. Many eCommerce merchants use Payment Service Providers to gain access to payment gateways and thus be able to accept payments. The Payment Service Provider will, in this case, make the gateway functionality available for the merchant and its customers. A payment service provider is a third party that helps merchants accept and facilitate payments.

Payment service providers partner with acquiring banks and their payment processors to offer merchants the capability to accept payments. Payment Service Providers often offer services in addition to processing transactions. These services include Payment Card Industry Data Security Standard PCI compliance, fraud protection and the ability to process different currencies and translate different languages.

What is a Payment Processor? A payment processor is a company authorized to process credit card transactions between buyers and sellers.

Payment processors enable merchants to receive debit or credit card payments online by providing a connection to an acquiring bank. These processors perform many functions, such as evaluating whether transactions are valid and approved, using anti-fraud measures to assure that a purchase transaction is initiated by the source it claims to be.

Processors are held to standards and regulations organized by credit card associations. These standards include rules regarding fraud, chargebacks, and identity theft.

If the shopper has used a credit or debit card to place the order with the merchant, the payment processor will transmit the transaction information from the gateway to the relevant card association.

What is a card association? A card association is a network of banks that process a particular brand of payment cards e. Visa, Mastercard, etc. The card association will either approve or decline the transaction directly e. What is an Issuing Bank? An issuing bank is any bank or financial institution that grants or issues credit or debit cards, through card associations. What is an Acquiring Bank? An acquiring bank is a bank or financial institution that accepts debit or credit card transactions for a cardholder.

The card network connects acquiring banks to issuing banks so that a customer transaction can be verified. The merchant forwards the payment request to get authorization from their arranged payment processor. If the buyer pays for goods or services through a digital wallet, such as Google Pay, Apple Pay, or any other similar payment method , the merchant submits the transaction information to the wallet operator. The data is then forwarded to the payment processor.

The payment processor delivers the transaction request to the relevant card association, with the issuing bank as the endpoint. The issuing bank receives the authorization request containing the elements of the credit card used in the transaction, such as the card verification value CVV , the expiration date, and the address verification services AVS.

The issuing bank either rejects or confirms the transfer. The approval or denial notification is sent by the issuing bank to the card association, the merchant bank, and, eventually, the merchant. Settlement and Funding. The merchant sends a batch of authorized payments to the payment processor. The payment processor forwards the transaction data to the card association.

The card association notifies the relevant issuing bank within their network of the requested debit. The requested funds are then transferred to the merchant bank by the issuing bank. Interchange fees are paid at this stage. The merchant bank credits the merchant account with the funds in question. Credit Card Interchange. Let's Get You to the Right Place.