How Credit Card Processing Works Explained Using Milk

We have all purchased milk within our lifetime. And chances are, you’ve used a credit card to purchase the milk. Ever wonder what happens when you swipe or insert your credit card to pay for the milk? The actual process and series of events necessary to pass along money from an individual to a business. Why would you, you don’t need to know that.

However, some people do need to know the behind the scenes process, because this understanding could contribute to a significant savings within your burn.

5 Important Players:

1. Cardholder:

If you are the purchaser of the item and you use your credit card as payment, you’re the holder of the card, get it?

2. Merchant:

Where ever you are purchasing your item.

3. Issuing Bank (Cardholder’s):

For a credit card transaction to take place, a bank must issue the funds, this comes from the holder of the card’s bank.

4. Acquiring Bank (Merchant’s):

The bank of the business who processed the transaction must acquire the amount for the transaction. For this, they pay a fee.

5. Credit Card Network:

The credit card network is the network who supplied the credit card (Visa, Discover, Amex)

Step 1:

Customer (cardholder) enters a store (merchant) and wants to purchase $10 worth of milk.

 

i-would-like-to-purchase-milk

Step 2:

The employee (merchant) takes the customer’s credit card (cardholder) swipes/inserts card and enters in total into credit card machine.

handing-credit-card

Step 3:

Sensitive payment data is then passed through the merchant’s processor to the credit card network (like Visa or Mastercard) routing the transaction to the issuing bank (cardholder’s bank).

credit-card-network

 

Step 4:

The issuing bank approves or declines the transaction based off of the cardholder’s available funds.

issuing-bank-approves-transaction

Step 5:

If approved, the merchant has the customer sign and take their milk.

milk-is-purchased

 

Step 6: 

The issuing bank sends the appropriate funds for the transaction to the credit card network, which then passes the funds to the merchant’s bank.

acquiring-bank-and-issuing-bank

 

 

Step 7: 

Enjoy your milk!

milk-on-fire

 

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