How does a credit card payment processing system work?

 In Payment Card Industry News

Our step-by-step review of how credit card payment processing works

There’s a lot of back and forth happening behind the scenes, but for a basic card transaction, this is the sequence of events to settle a purchase.

Credit Card processing is the sequence in which a customer uses a credit card at a merchant or retailer. The transaction processing begins when a card is presented as a form of payment or entered online. Immediately, the processor communicates with a card network through the chip present on your card or information entered. Once this is done, the card network sends an authorization to a bank, which in turn will send an approval to the card network. The card network will relay the approval to the processor, after which the processor sends an approval to the terminal, which is when your transaction is complete.


Here are the steps in sequence:

  1. A payment is made at a physical store or online through a payment gateway on a website. Popular payment gateways include and PayPal.
  2. Redirection to a payment gateway: Your payment transaction will then be passed through a secure connection.
  3. Info sent to credit card: The payment processor will send your payment information to the credit card network associated with your card. The major networks include Visa, MasterCard, Discover, or American Express.
  4. The processor will send details to issuing bank: The payment processor will then send information to the bank that issued the card.
  5. Verification of funds – the issuing bank will then confirm to the credit card company whether you have sufficient funds. This is where the transaction is either approved or declined.
  6. Message to the payment gateway – once approved, the card network will immediately respond back to the payment gateway or terminal.



Here are some common terms associated with credit card processing and worth taking a moment to review:

POS Terminal: A Point of Sale System or POS system with a terminal is the most common way cards are accepted in physical stores

Payment Gateway: Payment gateways or virtual terminal is the name for web-based platforms that facilitate online payments.

Payment Processor: Payment processors are the connection between the merchant (physical store or the eCommerce site) and the bank that has issued you the credit card.

Credit Card Network: These networks work alongside payment processors to ensure the communication between merchants and the bank issuing the credit card is seamless. Visa, MasterCard, Discover, and American Express are popular credit card networks.

Issuing Bank: The bank that issues the credit card to you is the issuing bank.

Acquiring Bank: Acquiring banks are those that accept your credit card transaction. These banks are registered with the popular credit card networks and accept transactions on behalf of merchants. These banks also provide merchants with physical card machines and other credit card-related equipment.


Cardholder: The person who owns the credit card is the cardholder.

Merchant: Any business that sells goods and services is the merchant. In this case, the merchant is an individual who accepts credit card payments for the goods and services.

Acquiring Bank: An acquiring bank of the merchant bank is the bank that has a contract with the person accepting credit cards as a payment method.

Issuing bank: The bank that issues you a credit card is the issuing bank.


Motus Financial, located in Sun Prairie, WI provides Point-of-Sale (POS) technology solutions and credit card processing services. Locally owned and operated Motus Financial provides a complete suite of POS technology services to assist merchants in processing payment from credit cards, debit cards, and checks.  Motus financial can also provide check processing as well as a customized gift card program for your business.

For more information, please contact us at 608-819-8666 or check out our website at and we look forward to assisting you.