E-Commerce Payments

How Card Processing Works: Payment Flow Explained

2019 November 19


How Card Processing Works: Payment Flow Explained

You go to the checkout, enter your card details, and, voilà, your order is on the way to you. However, the process that looks so easy from the customers’ perspective is actually very elaborate. This blog post explains card processing in a simplified way.

In order to accept payments from customers, an online shop needs a payment gateway, a merchant account and an acquiring bank. Usually, all these services are provided by one payment institution under one roof. It is easier and more convenient for merchants.

Before jumping into the whole payment cycle, here are some definitions you should get to know. A payment gateway is a solution which facilitates the transfer of transaction data and responses between the merchant’s website and the customer’s issuing bank. An acquiring bank is a financial institution that processes payments on the merchant’s behalf. The merchant receives customers’ payments in a special account which is called a merchant account.

Steps in online card processing:

  1. A customer enters the checkout form on your website, fills in all the card details (card number, expiration date, CVV/CVC code) and clicks the button to pay with a credit or debit card.
  2. A payment gateway receives the card data and transfers it to your acquiring bank.
  3. The acquiring bank receives a payment request and forwards it to the card networks (Visa and Mastercard).
  4. The card networks submit the transaction to the customer’s issuing bank for authorization.
  5. The card issuing bank checks whether the transaction data is valid, and the customer has sufficient funds for the purchase. If everything is fine, the issuing bank forwards the response that the transaction is approved.
  6. The card network transfers the approval response back to the merchant’s acquiring bank.
Card processing scheme

The process does not end here but proceeds to clearance. After the payment gateway sends the transaction information to the card networks, the card networks start the movement of funds from the cardholder to the merchant’s acquiring bank.

The business receives payments from customers in its merchant account. The payment service provider transfers the funds from the merchant account to the business’ bank account depending on the frequency of payouts.

Cardinity offers all the three solutions (i.e. a payment gateway, a merchant account, and an acquiring bank) in one place. It means that Cardinity provides you with a checkout form and a merchant account as well as transfers the payment information from your website to card networks and issuing banks. Don’t hesitate to leave your comments below if you have any questions.

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