When a customer pays with a credit or debit card, several parties work together behind the scenes to move money from the customer’s bank to your business account. The process happens in seconds, but it has three main stages:

1. Authorization (real-time approval)

This is what happens when you swipe, dip, or tap a card.
The transaction goes from your terminal/POS → your payment processor.
The processor sends the data to the card network (Visa, Mastercard, AmEx, Discover).
The card network asks the issuing bank (the customer’s bank):
“Is this card valid?”
“Is there enough credit or funds?”
The issuing bank replies with an approval or decline.
Your terminal displays the result and prints a receipt.
➡️ At this point no money has moved yet—just a promise that the bank will pay you.

2. Batch Settlement (end-of-day “cash out”)

Once you close out or “batch” your terminal:
All approved transactions for the day are sent to your processor.
The processor tells the card networks to move the funds.
The issuing banks (customers’ banks) send the money to your merchant acquiring bank.
➡️ This is when the actual money begins to move.

3. Funding (you get paid)

After settlement:
Your acquiring bank deposits the total (minus processing fees) into your business bank account.
This typically takes 1–2 business days, depending on your provider.
➡️ You’ll see one or more deposits in your account representing your processed transactions.

Who’s Involved (Simple Breakdown)

Merchant (you): Accept the card payment.

Processor: Routes transaction data and manages settlement/funding.

Acquirer (merchant bank): Holds your merchant account; deposits funds to you.

Card networks: Visa/MC/AmEx/Discover – route transactions between banks.

Issuing bank: Customer’s bank that approves and pays for the transaction.

What You Pay For (Fees)

Traditional credit card processing involves three types of fees:

Interchange – Goes to the issuing bank (largest part of the fee).
Assessment – Goes to the card network.
Processor markup – Goes to your processing company.

These are usually bundled into one rate or shown separately depending on your pricing model (flat rate, tiered, interchange-plus, etc.).

Why It Matters to a Merchant

Pros

Universal acceptance
Fast authorizations and funding
Chargeback and fraud protection systems

Cons

Processing fees
Chargeback liability
Hardware or monthly service costs (depending on provider)