How Credit Card Transactions Work

The typical credit card transaction begins when your customer hands you the credit card or swipes it through the card reader at your checkout. Or, if the transaction is handled online, over the telephone, or through the mail, it begins when the customer gives you the credit card number.

The next step in the typical transaction is for you to obtain permission from the credit card company to process the sale with the credit card. The authorization code will be obtained automatically. Once you have the authority, the only step left to take with the customer is to obtain the signature on the terminal or paper copy of the sales receipt. Then, you'll send the credit card sales receipts to the bank so that you can get paid. This is usually done in the background by your computer's software.

Your bank will authorize the charge and notify the credit card company (or some company acting on its behalf) of the charge. The credit card company (or the company acting on its behalf) will collect the money from the bank that issued the card, send it to your bank, and bill your customer. Once your bank has the money, it will put it in your account, minus a processing fee, called the discount rate, which is split between your bank and your credit card company.

When your customer pays the bill, the credit card company sends the money to the bank that issued the card, minus a processing fee . . . and everyone lives happily ever after.