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Do You Know What Happens When Consumers Run a Credit Card?

Transaction FlowVirtually everyone has run a credit card or stood in line at a store behind someone who did, but how that simple action turns into a payment is a mystery to most people. Few consumers realize that in the background, there is an elaborate, secure system of people, organizations and platforms ensuring that their payments are completed accurately and securely.

First, Definitions

It’s easier to explain how a payment transaction works if your clients first understand the roles that different people and financial institutions play:

A transaction begins with the consumer, who wants to make an electronic payment for a product or service. Consumers can initiate transactions in numerous ways. For example, they can as dipping an EMV chip card in a card reader, waving a mobile wallet close to a near-field communication (NFC)-enabled terminal, or typing credit card information into fields on an online payment page.

The merchant is the business that receives payment information when a consumer runs a credit card and sends it to an acquirer. Merchant acquirers process payment transactions, transmitting payment data to the card networks and the consumer’s bank account and managing fund transfers, ensuring deposits from electronic payments for merchants’ sales are deposited into their accounts. Although there are subtle differences, the terms “acquirer” and “payment processor” are often used interchangeably.  

The issuer is the bank that issued the payment card to the consumer or manages other types of electronic transfers, such as debit directly from the consumer’s bank account.

Credit card networks, recognizable by their brands, such as Visa or Mastercard, establish the terms with which consumers, banks and acquirers or payment processors must comply. 

What is a Payment Gateway?

Payment gateways play vital roles in payment transactions, but unlike other parts of a transaction process, they aren’t people or banks. A payment gateway is a software platform positioned between the consumer and the merchant. It provides a secure way to manage the transfer of electronic payment data. Gateways often provide merchants with data encryption from the moment the consumer runs a credit card until payment data arrives for authorization, so there’s never a point where a hacker could intercept it in human-readable form.

Gateways such as Datacap System’s NETePay Hosted, also give merchants the option to tokenize data so they can store a token rather than payment data in their systems, reducing PCI scope and increasing security. Gateway platforms can also integrate with value-added services, such as online ordering, text-to-pay and QR code payments, loyalty and gift card solutions to expand the merchant’s capabilities without the added time and expense of integrating with a solution from a third party.

Payment gateways are often the key to the omnichannel payment experiences that merchants want to offer, and processor-agnostic platforms give merchants the flexibility to choose a total solution that’s best for their business and their customers.

Authorization and Payment

In general, the process of making an electronic payment follows these steps:

  • The consumer runs a payment card or enters cardholder information.
  • The payment terminal or online payment page sends the information to the payment gateway.
  • The payment gateway securely transmits information to the acquirer.
  • The acquirer contacts the issuer to ensure the consumer has the funds to cover the transaction and there aren’t other issues that would prohibit the transfer.
  • The acquirer sends the authorization to the merchant.


At the end of a day, the merchant has authorizations from each electronic payment received, usually sent in a batch to the acquirer. Then, a process known as clearing takes place – the acquirer sends the batch to card networks, and the networks request payment from issuing banks. At this point, the issuer deducts their fees, as well as card network fees, and sends the net amount to the acquirer.

The acquirer subtracts their fees and sends the balance to the merchant’s account, and the issuer sends statements to consumers so they can pay their credit card bills.

In the Blink of an Eye

There can be some variation to this process depending on the type of payment that the consumer makes, for example, verifying one-time-use codes produced by EMV technology or confirming CVC for online payments, but in general, electronic payments follow this process. It is a string of vital and highly sensitive communications that can occur across thousands of miles – and in some cases, around the world. But, to the consumer, authorization takes only seconds after running a credit card. The rest of the process occurs behind the scenes, enabling merchants to focus on creating excellent customer experiences rather than spending time managing electronic payments.

ISVs and VARs most knowledgeable about payment processing will be able to help their clients optimize those experiences and develop relationships with partners that provide their clients with the most cost-effective, feature-rich solutions.

Are you ready to differentiate your business by learning more? Contact Datacap Systems.

Learn more about credit card payment transactions