Discover how credit card transactions work, from initial swipe to final settlement, including the roles of banks, networks, and fees involved. This guide clarifies the process behind each payment you make, making it easier to understand your credit card bill.

How Credit Card Payments Are Made and Settled

Ever wondered what happens behind the scenes when you make a credit card purchase? Here's a simple overview of the key steps involved in processing your payment, illuminating how the system works and where fees may come into play.

The major players in this process include the cardholder, the merchant, the merchant's bank (acquirer), the cardholder's bank (issuer), and card networks like Visa, Mastercard, or American Express.

Initially, you present your card for payment via swipe or chip. The merchant's point-of-sale system transmits your card details to their bank, which sends the information to a payment processor. Within seconds, this data reaches the card issuer for approval. Upon authorization, a confirmation message is returned through the network to the merchant’s system.

Following authorization, the charge settlement begins. Your bank deducts the sale amount from your account, while the merchant's bank receives the transfer. Both banks are part of the card network that manages the clearing and settlement process. Ultimately, your bank pays the merchant's bank, and you are billed for the purchase amount along with any applicable fees based on your card agreement.