How the Credit Card Approval Cycle Works

When your business accepts credit card payments, the approval process involves five basic steps:

Step 1: Submit Card Information

Your online customer clicks "Submit Order" or you press "Send" on the credit card terminal. Secured data goes to the bank that holds your merchant account (this is also known as the acquiring bank). If online, the encrypted data first goes through a “payment gateway,” the software equivalent of a terminal.

Step 2: Authorize the Transaction

The acquiring bank forwards the transaction to the issuing bank (the bank holding the credit card account), which then approves or declines the transaction.

Step 3: Return Response

The issuing bank sends back a response code to the acquiring bank. In the case of a decline, this code includes the reason for transaction failure.

Step 4: Register Response

The response code goes from the acquiring bank either to the terminal or, for online transactions, back through the payment gateway and to your Web site.

Step 5: Collect Approved Funds

The acquiring bank transfers the approved funds from your merchant into your checking account. When the transfer takes place depends on whether your merchant provider handles batch processing or real-time processing. Real-time processing is used for some online transactions, but it is considered more risky and therefore tends to come with a higher fee from your merchant account provider.