Credit card payment is the most preferred way of conducting online transactions, yet when it comes to understand the functioning of credit card processing most of us are quite confused. Credit card processing involves three simple steps : - once your card is swiped through a credit card terminal, the payment and credit card details are sent electronically to merchant's acquiring bank. After that the bank contacts credit card issuing bank. And the last step involves depositing the funds in acquiring banks after the validation and approval of transaction. Online credit card processing in e-commerce follows otherwise similar processing steps, except the physical credit card terminal that swipes your card in a retail store. Here, it is substituted by a service that processes online payments in a secure way, in short, payment gateway (Authorize.Net, 2checkout, CHASE Paymentech, etc.). The overall credit card processing procedure in an online store usually looks like the following: to set up credit card processing, a merchant requires a merchant account and a payment gateway account. Here is a list of steps from the beginning, the time a customer types his credit card number in an online store to pay for his order till he receives a response whether the payment went through: 1. A customer places an order and types his credit card number on a secure site of an online store. The shopping cart details includes the order and billing information. 2. Shopping cart details along with merchant account are sent to payment gateway secure server for processing. 3. Payment gateway forwards transaction information to merchant's acquiring bank. 4. Merchant's acquiring bank forwards transaction information to the credit card issuing bank for transaction verification. 5. Credit card issuing bank verifies transaction and sends response code (Approve, Deny, and reason for denial if applicable) back to merchant's acquiring bank. 6. Merchant's bank sends credit card transaction details and response back to payment gateway. If payment is approved, the bank will deposit funds on a merchant's account at the scheduled time. 7. Payment gateway sends transaction details and response back to merchant's online store. 8. Payment information is displayed to the customer; i.e. "credit card was charged", "credit card was denied", etc. At certain processing stages fees will be charged from the transaction total. The amount of fees depends on a payment gateway used, merchant account, credit card type, and other factors; it usually adds up to be two to three percent of total charges.
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