How does card payment processing work?

Card payment processing is a fundamental part of modern commerce. Whether you're shopping online or in a physical store, card payments offer convenience and security. But have you ever wondered how card payment processing actually works? In this article, we will explore the ins and outs of card payment processing, from the moment you swipe your card to the final transaction approval.

How does card payment processing work?

1. Authorization

The card payment process begins when you present your card to a merchant for payment. The merchant's point-of-sale (POS) terminal or online payment gateway sends the card information to the acquiring bank. The acquiring bank routes the information to the card issuer for authorization. The card issuer validates the card details, checks for available funds, and verifies if the transaction is legitimate. If the card issuer approves the transaction, an authorization code is generated and sent back to the merchant.

2. Clearing and Settlement

After receiving the authorization code, the merchant sends it along with other transaction details to the acquiring bank. The acquiring bank then forwards the information to the appropriate card network (e.g., Visa, Mastercard). The card network routes the data to the card issuer to initiate clearing and settlement. Clearing refers to the process of transferring funds between the card issuer and the merchant's bank. Settlement occurs when the funds are finally transferred to the merchant's account, typically within a few business days.

3. Security Measures

To ensure the safety of card payment processing, various security measures are implemented. Encryption: Card data is encrypted during transmission to prevent unauthorized access. Tokenization: Sensitive card details are replaced with unique tokens, reducing the risk of data theft. PCI DSS Compliance: Merchants and service providers must adhere to Payment Card Industry Data Security Standard (PCI DSS) to protect cardholder data. Fraud Monitoring: Banks and card networks employ sophisticated systems to detect and prevent fraudulent transactions.

4. Transaction Settlement

Once the clearing and settlement process is complete, the transaction is considered settled. The merchant receives the funds in their account, and the cardholder's account is charged. Both the merchant and the cardholder can view the transaction details on their respective statements. In case of disputes or chargebacks, a separate process is followed to investigate and resolve the issue.

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