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Payments 101

How does credit card processing actually work?

From the moment a card is tapped to the moment funds hit a merchant's bank account, four parties and a few seconds of network calls are involved. Here's the real sequence.

The four parties in every card transaction

Cardholder

The customer paying with a credit or debit card.

Merchant

The business accepting the card, via a terminal or POS system.

Card network

Visa, Mastercard, Discover, or Amex — the rails the transaction travels on.

A fourth party, the processor (and the merchant's and cardholder's respective banks), sits in the middle handling the technical routing and settlement.

The sequence, step by step

  1. Card is presented — chip, tap, swipe, or keyed — at the terminal or POS.
  2. Authorization request — the processor sends the transaction details to the card network, which routes it to the cardholder's issuing bank.
  3. Approval or decline — the issuing bank checks available funds/credit and fraud signals, then responds in seconds. Funds are held, not yet moved.
  4. Batching — at the end of the business day, the merchant's terminal or POS groups (batches) all approved transactions and sends them for settlement.
  5. Settlement & funding — the card networks move funds from the issuing bank to the merchant's bank, minus interchange and network fees. The merchant sees the deposit, often the next business day.

Where the fee comes from

Card acceptance isn't free to provide — interchange (paid to the issuing bank) and network assessments are set by Visa, Mastercard, Discover, and Amex, and every processor pays them. What differs between processors is markup, and how the base cost is structured — passed to the merchant as a flat rate, or shifted to the cardholder through a compliant surcharge or a cash/card pricing difference.

How long does it take for processed funds to reach my bank account?
It depends on the processor's funding schedule. Many modern processors, including PayWavez, offer next-day funding for transactions batched the prior business day, though weekends and holidays can add a day.
What's the difference between authorization and settlement?
Authorization happens in the moment of the sale — it confirms the card is valid and the funds are available, and places a hold. Settlement happens later, usually when the merchant batches the day's transactions, and is what actually moves money from the cardholder's bank to the merchant's account.
Why do card transactions cost the merchant a fee?
Interchange fees (set by the card networks and paid to the cardholder's issuing bank), network assessments, and the processor's own markup all make up the cost of accepting a card. How that cost is handled — absorbed by the merchant, passed to the customer as a surcharge, or built into a cash/card price difference — depends on the pricing program the merchant chooses.

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