How Merchant Payment Processing Works

  1. Customer offers her credit card to pay for an item.
  2. Merchant swipes/keys in credit card information and the customer signs the authorization slip.
  3. Through the processing center and interchange, the transaction is encoded, verified and sent on to the bank for approval
  4. Once the bank approves the transaction, the issuing credit card company is credited [CF1]  with the payment
  5. The bank simultaneously sends its approval back through processing and interchange
  6. Processing and interchange send the approval back to the merchant
  7. A receipt is issued and the transaction is complete

A diagram of the credit card processing cycle