Payment Processing Systems

There are three steps involved in credit card processing, and these are authorization, settlement and funding. For merchants, the most important aspect of credit card processing is ensuring that the customer will be able to securely use their credit card to make payments for their purchases.


Authorization involves verifying that the customer’s credit card has the sufficient funds to complete the transaction. It also confirms whether the customer is using a valid card. Authorizations can be acquired by phone, credit card terminals or e-commerce sites.

Authorization only takes a few seconds, and once the card is scanned or its information is submitted, the data will be transmitted for processing. The request will then be forwarded to the company that issues the customer’s card, such as American Express or Visa. The credit card company will then transfer the request to the issuing bank, where the transaction will be approved or denied.


Once a merchant has made a sale which is paid through a credit card payment, the transaction must be settled. Settlement is the method by which electronic payments are funded and cleared. The merchant must provide the transaction which has been approved, after which the transaction is sent to payment brands which can clear them via an interchange. These transactions are sometimes called deposit transactions. When transaction information is first sent out, it will be forwarded to Visa, MasterCard, or whichever brand is needed. It will then be verified by the issuing bank of the customer.

Once the payment brand gets the settlement request, it will issue a credit so that the merchant can be reimbursed for the amount of the transaction that has been settled. The issuing bank will then pay for the transaction, after which it will place the transaction in the account of the cardholder. The issuing bank will then send the customer a bill which will appear on the statement for their credit card, and they must pay it off.


Funding is the final step in processing a credit card payment. This is the phase where the funds from the transaction will be sent from the merchant account directly into the checking account of the business. You can also think of it as an extension for the settlement process. In order for funding to occur, a credit card payment must be authorized, as well as settled.

The payment brand, whether it is Visa, Discover or related companies, will provide reimbursement for the transaction, and then the funds will be forwarded to the merchant. Funding typically occurs within 48 hours of a transaction being completed, but may take longer during public holidays, as banks will not do processing during this time.

Have more questions about credit card processing? Here are top questions often asked: