How Online Credit Card Payments Work – MGR Consulting Group



Paying with the credit card has many benefits including convenience, easy tracking and security. And when Merchants use a payment gateway, they can accept all major credit card brands on their website, mobile device or retail store.

Paying with a credit card has three basic steps: Authorization, Capture and Settlement.

If you’ve purchased something using a credit card then you’ve seen authorization at work. A payment gateway is the service that processes credit card transactions for you. When your customers are buying something from your online store they enter their credit card numbers during the checkout process. Your e-commerce website sends that credit card information to your payment gateway to authorize the transaction and process the payment. This is Authorization.

After verifying the funds are available a hold is placed on the money. This is capture. Once the funds are captured, the merchant can hand over or ship the goods and be confident that they’ll be paid. However, the merchant doesn’t have their money yet. If the credit card information submitted to the payment gateway matches the information on file with the credit card company and the charge is approved, the payment gateway will then transfer the money from your customer’s credit card into your Merchant Account (see more on how a Merchant Account works below).

The process of transferring money from the customer’s credit card or bank account to the Merchant’s bank account is called Settlement.

Settlement usually occurs once each business day. During settlement, the banks connect to each other. The Payment Gateway begins the settlement process by aggregating the daily transaction details and sending them to the Merchant’s bank. The payment network then handles the settlement. Once settlement is complete, the buyer’s money is transferred to the merchant’s bank account. Meanwhile, the customer’s bank posts a charge on the customer’s account. The transaction is now complete and the purchase will show up on the customer’s credit card statement.

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