The Nuts and Bolts of Credit Card Processing

Consumers increasingly are turning to plastic over paper when they open their wallets. Credit and debit card spending exceeded $1 trillion in 1998, making it a necessary payment option for most businesses.

Yet many small businesses still don't accept credit cards. If you're one of the laggards, the entire transaction may retain the aura of a mystic ritual — swipe a card, input some numbers, and money magically appears in the bank. In reality, though, credit card transactions involve coordination between multiple high-speed computer networks.

How the Process Works

When a merchant makes a sale and swipes a customer's credit card, the card number, the amount, and the merchant ID travel over the credit card processor's computer network. The credit card processor can either be a bank or a company that does nothing but provide credit card processing services.

From the processor's network the transaction goes to a credit card computer network. If the customer is using Visa, for example, the transaction will go to Visa's network. In turn, the electronic transaction goes to the bank that actually issued the card. The bank then checks the account and verifies the customer has adequate credit to cover the purchase. The bank then sends the merchant an authorization over the network. Now the sale is complete, but the transaction is not — no money has changed hands yet.