Payment Processing: How It Works

458319_f7df0376952e4612bb2a2dee46431c01_mv2 (1)

Payment Processing: How It Works

An effective and efficient payment processing system is crucial to the running of a business, especially for its growth and development. As increased numbers of consumers engage in online payment, there is a rise in the need for an effective payment processing system. There is therefore also an increased need for understanding how payment processing works. In this article, we will be explaining the workings of payment processing as well as the role of the stakeholders that are involved.


Firstly, the customer, also known as the cardholder, would pay and provide their credit card number to a buyer to pay for the goods and services that they have purchased, most likely through a point-of-sale terminal. The buyer would then forward the payment request to their arranged payment processor in order to request authorization. The information is forwarded to the payment processor which transfers the transaction request to the associated card association and after which the issuing bank.

After receiving the authorization request filled with the details of the credit card like its card verification value (CVV), expiration date and address verification services (AVS), the issuing bank would either authorize or reject the payment. Common reasons for rejection could include a lack of money on the card, an expired payment date or an invalid or expired cardholder’s account. Afterwhich, the approval or denial notification would be sent by the issuing bank to the card association, the relevant bank and finally, the buyer. Thanks to technological advancement, this process can usually be completed within seconds to minutes.

Settlement and Funding

The last step of payment processing would be its settlement, during which the buyer would receive the payment that the customer gave for the purchased service or good. Settlement and funding are handled in a variety of ways, some of which include the buyer delivering a group of authorized payments to the processor and the processor delivering the transaction information to the card association. It also includes the card association notifying the relevant bank, the bank debiting the cardholder’s account with the exact amount, the funds then being transferred to the buyer bank and lastly, the bank crediting the buyer account with the money above.

Credit Card Interchange

This refers to the clearance and settlement of payment information where the bank finalizes the approved card payments for the buyer. The credit card interchange refers to the money paid by banks for the transaction too.

Payment Made Easy

It is important to have a secure payment processing system in order for your business to succeed, this way, your business will also be less likely to face the risk of unwanted chargebacks. Here at Millennium Payment Systems, we have the most advanced and cost-effective payment processing services in the market. We also consist of features like no hidden fees, online payments, as well as upgraded security tools. Have an effective payment processing system for your business to boost its growth and development. Contact us now to help maximize your business’s potential!