Credit Card Processing – Behind the Scenes

September 14, 2015



As the old saying goes… if you can’t pay your bill, you’ll have to wash the dishes.

A man named Frank McNamara avoided this fate in 1950 when his wife paid the bill, but from his predicament our modern day credit card system was born.

Frank’s idea was to develop a charge system where restaurant goers could pay a running tab at the end of each month.  Since that time, many forces have shaped the way credit cards currently exist

A Bank of Canada survey recently found that cash transactions have officially dropped to less than 50 percent of consumers’ purchasing habits. The efficiency of credit card processing is indisputable. Money is deposited into merchant accounts quickly and securely, and customers can complete their purchase without delay.

With over 76 million VISA and MasterCard cards in circulation in Canada, there is a good chance that businesses such as yours will be handling a lot of electronic transactions. And while the majority of the time, you will play a rather small role in the actual payment processing, it’s good to know what’s going on behind the scenes.


Let’s first take a look at the major players:

1. Associations

The associations are networks of issuing banks and acquiring banks that process payment cards of a specific brand.

2. Issuers

Issuers are association members (usually banks) who issue credit cards to consumers or businesses.  Issuers can also offer debit cards where funds are taken directly from the deposit account.

3. Acquirers

Acquirers such as Moneris bridge the connection between the issuer, association and merchant. They initiate and maintain relationships with merchants that accept credit cards.

4. Merchants

The businesses that accept credit card payments for goods sold.

5. Cardholders

The customers looking to make a purchase with a credit card in his or her name.


The Process

Now picture an average customer swiping his card to make a purchase at your business.  The information encrypted on his card is sent to the acquirer. The acquirer then forwards it to the cardholder’s issuing bank to ensure that the card is valid and has sufficient funds for the purchase.

The approval request is then sent through the card’s association for verification, and on to the bank, which delivers the final authorization to the merchant.

The time it took to read that, was longer than the process itself took from start to finish. In fact, acquirers can process over hundreds of transactions per second during peak retail periods.

Smart card payment processing works similar to credit cards, but instead of requiring a signature at the completion of the sale, smart cards – whether based on chip-and-PIN technology or contactless technology – require a PIN or touch-ID verification from the cardholder. 

The process of Clearing and Settlement makes sure that the money is transferred from the cardholder to the merchant’s business account.  Everyone involved in the transaction gets paid in a timely manner, and transactions are guaranteed prior to completion.

Accepting debit and credit makes good business sense.  Given the multiple levels of security involved in such transactions, without sacrificing those precious last few minutes of closing a sale, businesses can realize both improved cash flow and better customer service.


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