Credit Card Payment Processing: What It is & How It Works

Credit Card Payment Processing

It’s becoming increasingly important for high-risk merchants to provide their customers with payment methods they actually prefer. However, to effectively offer various payment options, it’s essential to have knowledge about credit card payment processing, online payments, and mobile payment options.

Specifically, with the rise of digital payment methods, businesses need to adapt and embrace certain changes and trends to remain competitive—something that is esepcially essential for high-risk merchants to accept credit cards.

The bottom line? Understanding credit card payment systems and processing will give you greater control and help increase the rates at which your cards are approved and conversions are achieved.

If you want to know more about how credit card processing works, the different stages involved, and who plays a role in the transaction process, keep reading.

We’ll break down all you need to know about credit card processing and find the most effective high-risk payment provider and processing solution that suits your business model.


What is credit card payment processing?

With the increasing popularity of cashless payments, credit card processing has become an essential component of any business’s operations. While it may seem like a simple swipe or tap of a card, there are multiple steps and parties involved in the process.

To break it down simply, though, at its core, credit card processing is about electronically transferring funds from a customer’s credit card to a merchant’s account. This involves a few important steps like authorization, authentication, and settlement. 

Credit card processing services manage the transactions, while payment gateways or payment processors securely transmit data to transfer money from the customer’s bank to the merchant’s account. 

A credit card processing company plays a crucial role in enabling the smooth transfer of funds between a merchant and a customer’s credit card issuer.  They ensure seamless payment acceptance, safeguard customer information, and thwart fraudulent activities, making them an essential lifeline for businesses.


Who is involved in the transaction process?

The process of card authorization and payment settlement involves key players such as the cardholder, merchant accepting the card, acquiring bank, issuing bank, and card associations (Visa and Mastercard).

Here’s a brief overview of each to help you understand everybody’s respective roles.



Simply put, a cardholder is someone who has obtained a bank card from an issuing bank and uses it to make payments for goods or services.



A merchant is any business that sells goods or services and accepts cards as a form of payment. As a high-risk business owner, you are considered a merchant and must have a merchant account that allows you to accept credit or debit cards from customers (cardholders) as payment.


Acquiring Bank/ Merchant Services Provider (MSP)/ Merchant Bank 


Is a registered member of card associations like Visa and Mastercard. They contract with businesses to create and maintain merchant accounts, providing equipment and software, and handling customer service and other necessary aspects of card acceptance. 


Cardholder Bank/Issuing Bank

Credit cards are issued to customers by the Issuing Bank or Cardholder Bank, easily identifiable through the bank identification number (BIN). These banks are also members of the card associations, such as Visa and Mastercard. 

Issuing banks pay to acquire banks for purchases made by their cardholders. It is then the responsibility of the cardholder to repay their issuing bank as per the conditions stated in their credit card agreement.


Card Associations 

Visa and Mastercard, known as Card Associations, do not issue credit cards or merchant accounts. Instead, they serve as custodians and clearing houses for their respective card brands. 

Their main role is to govern banks, Independent Sales Organizations (ISOs), and Merchant Service Providers (MSPs). They establish the standards that merchants must meet in order to accept debit and credit card payments, as well as the interchange fees associated with these transactions.


What are the 3 credit card processing stages?

Credit card processing involves three main stages – authorization, authentication, and settlement. When a customer makes a purchase using a credit or debit card, here’s what happens (all in a matter of seconds):



The initial step in processing credit card transaction processing is authorization. Once the merchant inputs the credit card details through a terminal or online, the information is sent to the MSP/Acquiring Bank. They further transmit it through the card network to the issuing bank for approval or denial of the transaction.



In this stage, the bank assesses the transaction based on the customer’s spending patterns and security protocols. If it meets the criteria, an authorization code is sent to the payment gateway, which then communicates it to the card processing service.



The card processing service finalizes the transaction by transferring funds from the customer’s bank to the merchant’s account. This process occurs electronically and is typically completed within a few seconds. 

Once the funds are successfully transferred, the transaction is considered complete. The customer receives a confirmation of their purchase, and the merchant receives the payment. This seamless process allows businesses to efficiently process a large volume of transactions, ensuring a positive customer experience and a streamlined sales process. 


How does credit card processing work?

Although it may appear straightforward, processing credit card transactions for high-risk businesses is a complex process that involves several steps. To complete a purchase, the transaction must be verified, accepted, or declined.

Let’s delve deeper into the credit card payment processing and payment transfer process. 

  • Firstly, the customer makes a payment using their credit card, either online or in person. The credit card is swiped or tapped at a point-of-sale system or a credit card reader. The terminal then contacts the credit card processing company to obtain authorization. 
  • Next, the payment gateway is connected, which securely connects the credit card or payment processor to the customer’s bank and the merchant’s account. 
  • The credit card processing company then collects the necessary card information from the customer’s issuing bank and transfers it to the merchant account. 
  • Finally, the issuing bank confirms the payment by validating the card security and authorizing the transaction.

At the end of the month, a statement is issued that shows the interchange for all transactions made that month. This interchange is the fee set by credit card companies for merchants to accept their cards as payment. 

Typically, card transactions are authorized in under a minute, and it takes about two business days for banks to deposit payments into the merchant’s account once the transactions are settled. However, some merchant service providers may offer same-day or next-day funding, while others may take longer to process payouts.

With digital payment becoming a preferred choice by most customers, high-risk merchants must collaborate with reliable payment gateways and processors. This can enhance the payment experience and increase the chances of making a sale, as customers are more likely to complete a purchase if they can pay using their preferred method.

By partnering with reputable high-risk payment gateways and processors, high-risk merchants can ensure that their customers’ sensitive data is protected and that transactions are processed smoothly and efficiently. This builds trust and confidence among customers, which is essential for repeat business and positive referrals.

Credit Card Payment Processing with PayFasto

As a high risk business you might need a Point-of-Sale (POS) or Mobile Point-of-Sale (MPOS) payment solution to accept credit card payments. 

POS systems are the preferred payment solution for physical stores and service-based businesses. They offer a high level of security, as they are equipped with encryption technology that protects sensitive customer data. 

(MPOS) devices offer a more portable and flexible payment solution. These devices can be connected to smartphones or tablets, allowing businesses to accept payments on the go. This makes them particularly suitable for businesses that operate outside of traditional brick-and-mortar locations.

Ultimately, the choice between a POS system and an MPOS device depends on the specific needs and circumstances of a business.

Credit Card Payment Processing Devices and Solutions - PayFasto

Why Choose PayFasto’s Credit Card Payment Processing Solution?

By getting a dedicated high-risk merchant account with PayFasto, you gain access to a wide range of payment options and utilize features of a reliable POS and MPOS payment gateway

We recognize the importance of adaptability for businesses in high-risk industries, which is why our merchant account is designed to meet your specific needs.

Whether you prefer local payment methods, POS or MPOS solutions, or traditional credit card and Mastercard processing, we have everything you need. 

Transaction Security 

Prioritizing transaction security, our POS and MPOS devices are designed to meet the highest security standards and have EMV compliance and encryption technologies incorporated to safeguard your transactions against fraud.

Seamless Integration 

To provide a unified solution for your business, POS and MPOS devices can be seamlessly integrated with our advanced payment platform. Through a centralized system and with real-time transaction tracking, you can conduct detailed analytics and simplified inventory management.

Flexible Connectivity

You can also get flexible connectivity options, whether you prefer a traditional POS system or a portable MPOS device. Connect wirelessly, via Bluetooth, or even use cellular data for uninterrupted payment processing.

24/7 Support

For any questions or technical issues you may have about your POS or MPOS devices, our support team is available 24/7. With our reliable support and timely troubleshooting you can be ensured of a smooth payment processing journey.

Range of POS and MPOS Devices

We have a wide selection of devices from PAX A80, PAX A920, to M30 – Android Payphone. These devices are carefully chosen based on their user-friendly interface, reliability, and security features, ensuring your payment processing experience is seamless.

Looking for a Credit Card Processing Solution Tailored for High-Risk Businesses?

Streamline your credit card transaction processing and elevate payment experiences with PayFasto’s advanced payment solutions.
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