What happens when a credit card is processed?

Have you ever considered what actually happens when a credit card is presented for payment of goods or services?  Merchants pay a credit card processor for this service and are charged a Discount Rate.  Here's a look at what the process looks like and costs involved:

• When a credit card is presented for payment of goods or services, the merchant swipes the card thru their credit card terminal.


• The transaction is electronically routed thru to their credit card processor

• The credit card processor electronically routes it thru the network (Visa or MasterCard) and the network earns an Access Fee (Visa @ .0925% and MasterCard @ .110%) on every transaction

• The network then electronically routes it thru the card issuing bank for approval or denial and this issuing bank earns the Interchange Rate (there are well over 200 different rates based on the card or transaction type)

• Then the whole process reverses back from the issuing bank, thru the network, back thru the merchant services provider, and finally, back to the merchant’s terminal with the approval. The processor charges the merchant a Discount Rate for providing the service which shows up on the merchant statement in various formats each month. It is the difference between the Interchange Rates and Assessments and what the merchant is paying that the processor earns for providing the service.

Well, that's how it all works, behind the scenes, and it happens all in a matter of seconds.