A Simple Guide to Credit Card Processing

Basic Overview

Regardless of the sector, almost all businesses eventually reach a point when it is essential to accept credit cards. A credit-card friendly business attracts a consumer base eager to spend and a world of opportunities.

However, it is important to understand what happens behind the scenes of a single card swipe! “Why?”, you might ask. Recent data shows that credit card owners spend 40% more than a debit card owner and the Innoviti terminal has the most choosiest of offers on credit cards!

If you are considering credit card payments for your business, this credit card processing guide is for you.

Parties Involved in a Card Transaction

Before we understand how credit card processing works, let’s identify the key stakeholders involved a typical credit card transaction:

    • The Cardholder

      This person uses a credit or debit card to pay for goods or services. They then offer the card to a merchant to pay for products or services.

Merchant / Retailer

The cardholder purchases goods or services from the shop or merchant.

  • The Card Issuer

    The financial organization (Rupay, Visa, Mastercard, Amex, etc.) that offers credit cards to the cardholders taking part in the transaction is known as the card issuer.

  • Merchant’s Bank or the Acquiring Bank

    The Acquiring bank houses the merchant account where the payment for goods/services will be deposited on the completion of a transaction.

  • Issuing Bank

    The issuing bank houses the customer’s bank account from which payments for goods/services will be deducted

  • The Payment Gateway

    The front-end technology which the merchant and consumer interacts with at the point of sale (PoS) terminal is known as a payment gateway. It reads and encrypts credit card information and transmits it to the acquirer via the payment processor.

  • The Payment Processor

    The Payment Processor is a financial company that communicates the relevant information between card companies and the banks.

Steps involved in Credit Card Processing:

  • Payment Authorization

    Payment authorization is the first stage of credit card processing. In this step, credit card information is verified and the incidence of fraud is detected and eliminated.

    1. When a customer swipes or taps their card at the Innoviti terminal, information is sent to the acquirer (acquiring bank) as encrypted data via the payment gateway.

    2. The encrypted data then hits the payment processor via the credit card’s network.

    3. The payment processor make’s contact with the issuing bank which proceeds to verify the identity of the customer and checks for sufficient funds in the customer’s bank account.

    4. Immediately after this, the issuing bank authorizes the transaction which is reflected on the point of sale (PoS) terminal.

  • Payment Authentication

    The second stage of credit card processing is payment authentication. Once the transaction has been authorized, funds are transferred from the customer’s account to the merchant account.

    1. Post authorization, the payment gateway conveys transaction approval to the payment processor.

    2. Again, via the card network, the payment processor relays the information to the acquirer bank.

    3. The payment processor deposits the amount payable in the acquiring bank account after levying a fee for services rendered. Amount payable deducted from the issuing bank uses the card network to reach the payment processor.

    4. Finally, the total amount (transaction amount + fees applicable) is deducted from the customer’s account by the issuing bank and an invoice is produced.

Payment Settlement

Payment settlement happens following the authorization. On a regular interval, the merchant delivers a “batch” of authorizations to the payment processor for settlement.

To submit the batch across the card association networks, the processor reconciles the authorizations.

Additional Information to be Aware of:

  • POS Terminal

    Most commercial credit card terminals are capable of handling secure transactions by those utilizing EMV “chip card” technology. Innoviti POS terminals can offer a quick and secure solution to accept credit cards at the point of sale.

    Merchants often prefer Innoviti’s fully-integrated P0S system for its value-added solutions that offer further benefits in addition to processing, such as payroll management, loyalty programs, and more.

  • Clearing

    The charge slip for the transaction will finally appear on both the retailer’s and the customer’s billing statement. Every day, the retailer sends approved transactions to the acquirer. The credit card firm receives the transactions, settles them, and sends the acceptable transactions back to the issuer.

    Typically, the transaction takes 24 to 48 hours to complete and shares the merchant’s statement with the issuing credit card. The buyer will finally notice the purchase price as a charge on their billing account and settle the balance.

  • Credit Card Processing Fees

    The typical transaction processing cost for credit cards is from 1.3% to 3.5%.

    The costs an organization levies will vary depending on the Merchant Category Code (MCC), the type of credit card, and the payment firm you select (American Express, Discover, MasterCard, or Visa).

    The costs associated with processing payments, the card networks, and card issuers are among the other variables that may affect fees. When deciding which payment methods to accept for your company, you must keep an eye on the monthly expenses.

    Innoviti’s collaboration with well-known Indian banks focuses on frictionless delivery to prevent hassles of processing payments. Its primary goal is to transform India’s payment system completely, and its transaction processing charge is among the lowest in the country’s entire credit card processing infrastructure.


Now that you are familiar with the stakeholders and steps involved in credit card processing, initiate transactions at your Innoviti terminal with confidence!

Innoviti has consistently improved its service offerings, enabling retailers, banks, and brand partners to offer customers an exciting purchase experience. Our products are created and engineered with a customer-focused philosophy to give customers a seamless, affordable, and trouble-free payment experience.