1. Customer Initiates a Payment

The process begins when a customer decides to make a purchase using a credit or debit card. This can happen at a physical store (via a point-of-sale terminal) or online (via an eCommerce site).

2. Payment Information is Captured

The customer’s card information is captured either by swiping, inserting, tapping (contactless), or manually entering card details online. The information includes the card number, expiration date, CVV code, and other relevant data.

3. Transaction Authorisation

The payment data is sent to the payment processor via a payment gateway (for online transactions) or directly through a point-of-sale system (for in-person transactions). The processor communicates with the customer’s card network (e.g., Visa, MasterCard) to check:

– The validity of the card.

– Whether the customer has sufficient funds or credit available.

If approved, the card network sends back an authorisation code, allowing the transaction to proceed. If declined, the payment fails.

4. Payment Settlement

Once the transaction is authorised, the acquiring bank temporarily holds the funds. This step involves the payment processor deducting the transaction amount from the customer’s account and crediting it to the merchant’s account. This process typically happens in real-time or within a few seconds.

5. Clearing and Funding

After the day’s transactions are completed, the payment processor aggregates all approved transactions. The funds are then deposited into the merchant’s business bank account, minus processing fees. This process usually takes 1-3 business days, depending on the terms with the acquiring bank.

6. Fees and Charges

Merchant accounts involve various fees, such as:

– Transaction Fees: A percentage of each sale 

– Monthly Fees: Charges for maintaining the account.

– Chargeback Fees: Costs associated with disputed transactions.