How credit card transactions work
Interactive guide shows how merchants, banks process card purchases
By Tyler Metzger | Published: January 14, 2009
More than 23 billion credit cards transactions are processed annualy in the United States. But have you ever wondered what exactly happens after your card is swiped?
Use this guide to to find out how your credit card transactions are processed.
Download the printable version of this story.
Cardholder: The owner of a card that is used to make credit card purchases.
Card network: Visa, MasterCard or other networks that act as an intermediary between an acquirer and an issuer to authorize credit card transactions.
Clearing: The third step in processing a credit card. After the acquirer receives the batch, it sends it through the card network, where each sale is routed to the appropriate issuing bank. The issuing bank then subtracts its interchange fees, which are shared with the card network, and transfers the remaining amount through the network back to the acquirer.
Discount fee: A processing fee paid by merchants to acquirers to cover the cost of processing credit cards.
Funding: The fourth and final step in processing a credit card. After receiving payment from the issuer, minus interchange fees, the acquirer subtracts its discount fee and sends the remainder to the merchant. The merchant is now paid for the transaction, and the cardholder is billed.
Interchange Fee: A charge paid by merchants to a credit card issuer and a card network as a fee for accepting credit cards. They generally range from 1 to 3 percent.
Issuer: An financial institution, bank, credit union or company that issues or helps issue cards to cardholders.
See related: Credit card processing services for nonprofit organizations, How credit cards work, Merchant processing fees affect businesses, card issuers, Interchange fees debated at Senate hearing, How to select a credit card processor for your small business
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