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How Credit Card Processing Works in 2021

Curious about how the credit card processing industry works? Here’s a crash course:

What is Credit Card Processing?

Credit Cards are an extremely popular form of payment. They are used every day to pay bills, purchase items online and in stores, and pay for all types of services. However, many people do not fully understand how payments are coordinated between a customer's credit card, the banks that issue these cards, and the payment processors that allow for the quick and easy payment experience that we are all accustomed to today. Here is a brief overview of how credit card processing works, and the role of the different participants at each step. 

Who are the Card Brands? What do They do?

So what do Visa and Mastercard do? Visa and Mastercard are credit card network operators (often referred to as "Card Brands"). These credit card networks facilitate a system of real-time authorization and fund transfers between merchants (businesses), customers, and their respective banks. The most popular networks in the US and Canada are Visa, MasterCard, Discover, and American Express.

Cardholders and Issuers

The customer who uses a credit card to make purchases is called the "cardholder", while the issuer is usually the (financial) institution from which a customer receives their credit card.



In order to acquire a credit card, a customer will usually have to call their local bank and apply for one. It is the customer's bank (the “issuing bank”) that is responsible for issuing the credit card. Some examples of issuing banks including RBC, Bank of America, and TD, but there are over 100,000 issuing banks worldwide. These issuers work in partnership with card brands such as Visa, and Mastercard to offer structured rewards and ensure that cards will work wherever credit cards are accepted.

Issuing banks do expose themselves to a degree of risk when extending credit to cardholders - i.e. if a cardholder is unable to pay their credit card balance, the loan must be written off. This is why issuing banks provide credit cards, and not the card networks themselves.

Merchants And Card Processors

Just like cardholders, businesses looking to accept credit cards (called "merchants'') do not contact Visa or Mastercard directly. Instead, businesses will sign up for a merchant account through a credit card processor. There are many processors available, including Helcim, Moneris, Chase Paymentech, First Data, Global Payments, PayPal, and others.

The processor will provide a number of functions to the merchant. First, they will register their business with the various card-networks so that they can accept all the payment types required. The processor will also arrange for the processed funds to be deposited back to the merchant, typically within a few business days. The processor will provide the merchant with the equipment, software or platform needed for them to accept credit cards. Finally, the processor will charge processing fees for their service, and provide customer service to help merchants in need.

American Express

American Express (also known as Amex) is another popular credit card brand and network. American Express is unique when compared to Visa and MasterCard, as not only are they a card-brand and card-network, but they are also the card issuing bank and card acquirer. 

American Express is actually a bank and therefore can take on cardholders directly and approve their credit risk. Many cardholders, especially businesses, will choose American Express credit cards as they often offer greater rewards and perks. However, this usually means higher processing fees for merchants accepting those cards.

American Express also does not provide equipment or services to merchants looking to accept their cards. Merchants must sign up with a credit card processor, just like other card-types.

How Credit Card Transactions Get Processed

The diagram below walks you through a credit card transaction as it flows through the network. See the step-by-step outline below the diagram for further detail:


1. A cardholder visits a merchant location and issues their credit card through a payment terminal.

2. The payment terminal communicates with the credit card processor and sends information about the transaction. Information includes the credit card details and the amount to be processed.

3. The processor will detect what type of credit card it is and communicates with the appropriate network (such as Visa).

4. Visa determines the issuing bank (such as Citi Bank) and communicates the transaction to them.

5. The issuing bank ensures that the card is valid, has not been flagged for fraud and that the funds are available. If so, it provides a response back to the network with an APPROVAL CODE.

6. The network responds back to the processor with the approval information.

7. The processor responds back to the merchant's equipment, which then displays the approval message.

8. At the end of the night, the network will transfer the funds from the issuing bank to the processor, which will then transfer the funds to the merchant.

What's amazing about the above is that most transactions go through these steps in less than a second, providing real-time authorizations to merchants across the world. Visa alone processes thousands of transactions per second across its network, serving over 150 million transactions between cardholders and merchants worldwide every day. 

Looking for a Credit Card Processor?

If your business needs to accept credit cards in person or online, Helcim provides honest, transparent, and affordable credit card processing that stands out in an industry known for shady business practices and customer exploitation. Our Interchange Plus pricing is widely regarded as the most honest and affordable billing method in the industry and our customer service is consistently lauded as a step above. Sign up with Helcim today if you want to benefit from smarter payment tools, lower prices, and expert customer service.

Danny Randell

Danny Randell holds a Bachelor of Arts degree with a major in history and a minor in business administration and started his career with ATB Financial. Whilst at ATB, he worked first in corporate recruitment and then on the front lines of banking. Just prior to joining Helcim, Danny worked as an advisor at Sun Life Financial where he achieved LLQP and CIFC certifications. Danny is a passionate writer and has contributed to the Western Talent & Innovation Review; a journal for which he was also an editor, and helped found the Ambrosia Literary Review at his alma mater. When the opportunity to write for a living came his way, he couldn’t help but jump at the chance to join Helcim. Besides being an advocate for small business, Danny loves history and music, and when he isn’t writing for Helcim, he is probably writing songs or blogging about the past.