The Basics of Credit Card Transactions

When you first step into a store or proceed to make payments via your credit card on some online shopping portal, the entire process might seem quick enough and comforting, but it probably does not cross your mind that the transaction involves several key players and a web of steps between you furnishing your card details online or to the store merchant and the transaction is finally accepted.

The credit card industry works on complicated dynamics. It might seem really easy to get your hands on a credit card today that offers a palatial credit limit.

However, the entire process of transactions using these cards is quite complex. It might happen over a few minutes and look like a child’s play to us, but it is a series that consists of a number of steps involving the consumer, merchant, processor, card networks, consumer bank, and the merchant again. Thus, the ostensibly easy and quick process of transaction that happens through credit cards actually has a whole web of intricacies involved.

The article here shall deconstruct the main steps involved in a transaction via credit card for the ease of understanding. You could also go through this article by Ken Stephens to get an understanding of how to go about the process of applying for a credit card if that sounds like something you would be interested in.

The Minutiae of Credit Card Processing

A transaction that takes approximately 15 seconds to be done with involves essentially six major steps starting from the consumer and coming to a close with the merchant. We shall now go over the steps, one by one to get a decent understanding of the overall process. It might pique your interest to learn about how your transaction for online booking of your favorite movie is accepted. Therefore, without further ado, let us delve into the details.


A transaction begins with the consumer. Of course, the consumer is the owner of the credit card. Therefore, he must first swipe or dip his card and hand over the payment information to the merchant.


This is the first of the two times in the entire transaction process that involves the merchant. The role of the merchant in this step is to collect the payment information, which again can happen in two ways- first, the payment information can be handed over to the merchant in front of him via a card reader, and two, the payment information can happen through an online gateway.


The role of the processor is to transfer the payment information to the card network. It collects the information and then manages its flow among the other intermediate parties involved in the transaction.

Card Network

Credit card networks receive payment information from the processor and then transfer the information to the consumer’s bank. The next step that includes the bank is one of the most crucial steps and decides whether your transaction will be accepted or rejected.

Consumer Bank

The consumer’s bank goes through every tiny detail of the consumer and then decides upon the finality of the transaction. The bank checks a number of variables before accepting the transaction. It checks whether the customer is authentic or not, and shall also look into the funds of the customer. Once every criterion is fulfilled, the transaction goes through and is said to be accepted by the bank.

The OTP or One-Time-Password that you receive while trying to get through a deal online is the bank’s way to check and receive confirmation about the customer’s authenticity.


This is the final step in the entire procedure and involves the merchant for a second time. Whether the transaction is accepted or declined shall be conveyed to the consumer via some kind of a message and shall follow the same channels tracing its way back to the merchant as described before. Only after the transaction is cleared will the consumer be provided with whatever goods or services he/she demanded. For instance, when you try to book your movie ticket online, you will only receive the e-ticket on your mail or phone after the transaction goes through.

In case the transaction is declined by the bank due to insufficient funds or erroneous credit card details, the booking shall be considered incomplete, and you will not receive the ticket.

Therefore, the transaction that happens in the store in front of the merchant or online, might take a few minutes to go through but is actually a complicated and elaborate process that involves multiple channels and parties.

The merchant bank, the credit card processor, the card network, and the consumer bank are the most valuable players in the entire process. It is the interaction that happens between these key players that decide the fate of the transaction.

•    The merchant bank, like its name suggests, is the bank where the merchant has all his funds.

•    The card processor is the medium through which the interaction between the merchant and the cardholder’s bank occurs.

•    The card network works hand in hand with the card processor and is responsible for transferring information from the processor to the consumer’s bank.

•    Finally, the consumer’s bank, which is also known as the issuing bank, goes through all the data and then gives out the final word on the transaction.

A Word of Caution

These little things known as credit cards have made life so much easier than what it used to be. Transactions happen quicker and are also recorded automatically without the consumer and the merchant having to enter the details manually in their respective ledgers.

However, the science behind the working of these credit cards would probably bewilder people if they happen to read about it. Also, applying and availing the services of credit cards have become extremely easy. Banks are always on their toes to entice customers with their lucrative offers for credit cards.

People with a good credit score often serve as a good catch. However, while all these might seem and sound easy, it is crucial that we remember that credit cards can spin a web of harrowing tales of debt if not used cautiously. It is rather easy to lose hold on self and end up in a vicious cycle of debt. This not just acts as a blow to an individual’s credit score, but can also ruin lives forever.

Breaking the debt cycle of credit cards can be difficult and it is important that people learn how to manage their expenses once they start using credit cards.

Throwing caution to the wind and spending more than what your credit limit offers can be pernicious and lead to legal implications.


No matter how complex the entire process might seem, it is important to acknowledge the technological marvel that credits cards are. They have been making lives and transactions easier since its very introduction. With the onset of various other digital platforms for transactions, credit cards might face some competition, but there is absolutely no reason for banks and credit cardholders to feel threatened. Credit cards have reigned over the world of transactions for decades. They are here to stay and show no signs of slowing down.

Mark Thomasson
Mark is a biz-dev hero at Invoicebus - a simple invoicing service that gets your invoices paid faster. He passionately blogs on topics that help small biz owners succeed in their business. He is also a lifelong learner who practices mindfulness and enjoys long walks in nature more than anything else.
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