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From swipe to settlement: How a transaction is processed

By Adam Sanders

We're all accustomed to making both in-store and online transactions, but do we really know the back-end processes it takes to process a payment? The split-second that it takes to complete a transaction is actually much more complex than what meets the eye.

Keeping that in mind, here is a brief background of who's involved in the payment processing lifecycle and what it takes to complete a transaction:

Who's involved?

A payment starts with a customer who's interested in buying a particular product or service from some type of retailer or merchant service. After that, there are four other parties involved:

  • The merchant that's selling the product
  • The payment processor that organizes the transaction
  • Credit card brands like MasterCard and Visa
  • Card issuers such as banks, credit unions or another financial institution

How does the payment get processed?

Here is a step-by-step outline of how a card-based transaction is processed:

  • The customer gives his or her card to the merchant to pay for a product or manually swipes the card themselves.
  • Once the card is swiped, the transaction request is sent to the merchant's payment processor partner
  • The processor then sends the transaction request to the corresponding credit card brand
  • The credit card company sends the transaction to the card issuer
  • The issuer then approves or declines the transaction based on available funds



Mercurypay.com-The Lifecycle of a Payment

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