How does the credit card transaction process work?

In order to explain the exact process, you should know the major participants in the credit card transaction and settlement process as well as their roles:

  • Authorize.Net® acts as a bridge between your company and the financial entities that handle the processing and settlement of credit card transactions.
  • Your Merchant Bank Account is the bank account that allows you to receive settlement funds for credit card transactions processed through the Internet.
  • The Acquiring Bank is the bank that holds your merchant bank account. If you signed up for the Authorize.Net Payment Gateway through a reseller or other sales organization, you may not have a direct relationship with your acquiring bank.
  • The Processor refers to the payment processor that processes credit card transactions (for example, TSYS, FDMS Nashville).
  • The Credit Card Issuer is the financial institution or bank that issued the credit card to your customer.
  • The Credit Card Interchange System refers to the system established by the credit card associations that allows acquiring banks to submit credit card transactions to the credit card issuing bank for settlement on behalf of their merchant clients.

The following steps describe the actual credit card process:

  1. A credit card transaction is submitted to the Authorize.Net Payment Gateway.
  2. Authorize.Net automatically passes the transaction over a secure connection to the Processor.
  3. The Processor passes the transaction to the Credit Card Interchange System.
  4. The Credit Card Interchange System routes the transaction to the appropriate Credit Card Issuer.
  5. The Credit Card Issuer approves or declines the transaction based on available funds and passes both the transaction results and, if approved, the appropriate funds back through the Credit Card Interchange System.
  6. The Credit Card Interchange System relays the transaction results to the Processor.
  7. The Processor relays the transaction results to Authorize.Net.
  8. Authorize.Net stores the transaction results and sends them back to the customer, and/or you, the merchant.

On average, steps 1-8 take only 2 to 3 seconds! Click on “How it Works” for an illustration of these steps.

Please note that some of the information that Merchant Service Providers require is never seen by Authorize.Net. Our system cannot check to verify if a credit card is a personal or business card or if the card issuing bank is foreign or domestic. Simply put, our service is to provide the secure gateway for the credit card and authorization information to pass over the Internet from your website to the payment processor for your account. The type of information that some Merchant Service Providers require is never seen by Authorize.Net.

The transaction must go through a second process at the end of the day, where the entire batch of transactions made in a 24- hour period is sent to the processor for settlement and final processing. The batch takes the following route:

  • Authorize.Net servers.
  • Funds and process results go back to interchange system.
    1. Funds are sent to acquiring bank, then to the merchant's bank.
    2. Process results sent to processor.
    3. Acquiring bank's processor.
    4. Credit card interchange system.
    5. Credit card issuer (transaction verified and funds are released).
  • Process results sent to Authorize.Net servers and stored on your account.
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