Payment Tips

How Does a Credit Card Processing Business Work? A Closer Look

Learn more about how credit card processing businesses work
Lizzy Rosenberg
February 16, 2023

Keep reading to discover what a credit card processing business is, how it works, and what factors you need to consider before you partner with a business.

According to the latest research, 27% of people are paying with credit cards for transactions, which is up 3% from the year beforehand.

If you’re going to stay relevant as a business, you’ll need to use card processing for your business, but you may need to partner with a business to be able to do that.

Speak With An Expert Today!
Fill out this form and a merchant services representative will be in touch!

Get in touch: (877)-511-3402

Businesses Involved

Before you can fully understand the process, you need to understand how the key players work in each stage of the process.

For example, the cardholder is the person who has a credit card or debit card. They’re normally involved in the authorization or settlement stage. The cardholder will get the card from the bank and then use it to pay for services or products.

The merchant would be your business that is selling those goods or services . You can decide what types of cards to accept as payment, and you’ll have to get a machine that will let you accept payments from your cardholders.

There are also two types of banks that you’re going to work with: your acquiring or issuing bank. The acquiring bank is your business’s bank, and the issuing bank is the cardholder’s bank.

An acquiring bank will need to be a member of the association of the card. For example, if they are giving out a Visa card, then they have to be a member of the Visa association. These banks will work with merchants to maintain their accounts and let them accept card payments.

These banks will sometimes provide software and equipment, but sometimes you’ll need to get it from a different company and connect it to your merchant’s bank.

The issuing bank will also need to be a member of the card associations, and they will pay your bank for the purchases that the cardholders will make. It is then the cardholder who needs to pay their bank because of their credit card agreement.

Credit card processing businesses can be a tough topic to navigate

Three Main Stages

Now that you understand who the key players are in the credit card processing system, you understand how they play in the system.

There are three main stages when a cardholder makes a purchase with a credit card: authorization , authentication, and settlement.


This is the first stage of the transaction, and the cardholder will give their card information to the merchant. They might enter their card number into the processing system, or swipe and insert their card.

Once they do that, the merchant will send a request for payment authorization. The payment processor then sends the request to the card association, and the association sends it to the issuing bank. The issuing bank will then approve or deny the request and send the message to the card association.

Then, the card association will send the payment to your payment processor, and then it gets sent to your business. If it’s denied, then you will have to reach out to the bank of the cardholder.


The authentication stage will happen once the cardholder makes the transaction. This is when the bank makes sure that the transaction is actually valid.

The issuing bank will validate all of the information and send an approval to the merchant bank or the card association. The issuing bank will then put a hold on that amount on the cardholder’s account.

However, the business should be able to see the transaction on the terminal at the end of the day so that they can process it.


When the payment is settled, this is when the merchant will actually get the money. You’ll get batched payments for the authorized funds.

The payment processor will have to send this batch to the card association, and then the card association will send this information to the issuing bank.

Then, the issuing bank will charge the account of the cardholder for the authorized payment. The issuing bank will then subtract any fees before they send the money over to the merchant account.

How to Choose a Processor

This process can be a lot easier when you work with the right credit card processing business. One thing you’ll want to consider before partnering with a company is ensuring that you’re compatible with each other.

You’ll want to ensure that you choose someone in your industry who can handle your transaction volume. If you’re planning on rapidly scaling your business soon, you may also want to hire someone who can scale with your business.

Keep in mind that some payment processors won’t work with companies that are in an industry that is highly regulated . These industries normally deal with alcohol , cigarettes, or other businesses which require licensing. However, you can always check with the company to ensure they support payments for your business type .

You’ll also need to ensure that the equipment will be compatible with any systems or equipment that you already use. For example, if you’re an e-commerce business , you don’t need a terminal, but you want to ensure they have a payment gateway that you can put into your website.

Discover More About How a Credit Card Processing Business Works

These are only a few things to know about how a credit card processing business works, and now that you understand it, you can find a company that can help you out.

Thankfully, you’re in the right place. We’re here to help you out and ensure that your credit card processing is as simple as possible.

Check out our website to learn more about our credit card processing services.

Get Started With
Zen Payments

Our merchant service specialists are the best in the business and will work with you from start to finish to get your account approved!

Ready to Start Proccesing?
Fill out this form and a merchant services representative will be in touch!


Lizzy joined the Zen Payments team following her graduation from Utah Valley University. As a dedicated customer service representative, she brings extensive experience in client relations and customer support. Lizzy is committed to delivering exceptional service to all Zen Payments clients.

Don't forget to share this post!
Zen Logo
Feel free to reach out to us with questions or for general support, available 24 hours, 7 days a week!
email iconsales@zenpayments.comphone icon(877)-511-3402Partner Login
© 2024 Zen Payments | All rights reserved
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service  apply.