Key Takeaways

• Credit card transactions rely on a multi-step process that extends beyond the checkout moment.
• Authorization, settlement, and funding occur through coordinated systems involving processors, networks, and banks.
• Payment gateways and processors play distinct roles in data formatting, routing, and risk screening.
• Issuing banks make approval decisions, while card networks facilitate communication between parties.
• Understanding transaction flow helps merchants resolve issues and adopt new payment features more effectively.

Leo Daboub Jr. is a senior executive in the credit card and ACH processing industry with decades of experience supporting merchants, financial institutions, and public-sector entities. Serving as chief revenue officer of Atlantic Pacific Processing Systems, Leo Daboub oversees revenue strategy and the delivery of secure payment solutions that integrate with point-of-sale platforms and depository banking systems. His background spans both private and government-focused payment environments, including the development of large-scale municipal programs handling high transaction volumes.

Earlier in his career, he held senior leadership and business development roles at TransFirst Merchant Services and Payment Resources International, where he worked closely with issuing banks, card networks, and acquiring partners. This experience provides practical insight into what occurs behind the scenes when a customer submits a credit card payment, from authorization through settlement, funding, and post-transaction review.

What Happens behind the Scenes in a Credit Card Transaction

For customers, a credit card payment is completed in seconds. They swipe, dip, or click “Pay” and continue with their day. For merchants, however, that quick exchange relies on a coordinated sequence of background steps triggered the moment the card information enters the system. Authorization happens almost instantly, while settlement and funding unfold later through batch processing.

The process begins when a system captures the card details. A point-of-sale terminal might read a chip or tap signal, or an online customer might enter their card number at checkout. To protect the account, the system encrypts the data before transmitting it securely.

Once captured, a payment gateway converts the data into a standardized format that downstream systems can understand. The gateway ensures compatibility across checkout methods and prepares the message for the payment processor. Issuers verify card details such as expiration during authorization.

The payment processor receives the gateway’s message and selects the correct routing path. Most processors apply risk-screening tools, which vary by provider, before sending the request to the appropriate card network. The routing depends on the card brand and the processor’s internal setup.

The card network serves as a communication link between the processor and the cardholder’s issuing bank. It delivers the request to the bank and returns the response. When the issuing bank receives the request, it checks available credit and runs validation steps to assess whether the charge meets approval criteria. The network does not approve the transaction; rather, the issuing bank makes the decision.

The issuing bank sends its approval or decline back through the card network. The processor then relays that response to the merchant’s checkout system. Although these steps span multiple systems, the merchant sees the result nearly instantly. An approval includes an authorization code that helps the processor match the charge during settlement.

After receiving approvals, the merchant’s software groups the charges into a batch. At a scheduled time, typically daily, the merchant submits this batch to the processor for clearing. The processor then sends the transactions to financial institutions, advancing authorized charges to settlement and funding.

The acquiring bank, which maintains the merchant’s account, receives the cleared transactions and deposits the money. Most businesses receive these funds within one to two business days, though timelines can vary by provider. Some offer next-day or instant deposit options depending on eligibility and account history.

Beyond authorization and settlement, card networks and issuers may apply additional checks, especially for e-commerce. Programs like Visa Secure enable identity confirmation through multi-factor prompts, while processors offer layered fraud-prevention tools. These combined controls help confirm cardholder legitimacy and reduce unauthorized approvals.

Transactions occasionally fail after appearing to go through. Invalid data, issuer blocks, or problems in the clearing stage can all lead to reversals. When merchants understand the role of each element of the process, they can resolve issues faster and avoid repeated attempts at checkout.

As providers expand faster funding options and networks advance authentication programs, teams that understand the transaction flow can quickly adopt new payout models and security steps. That readiness shortens onboarding with new processors, aligns internal controls with issuer and network requirements, and keeps reconciliation stable as features change. Instead of reacting to problems, teams can plan upgrades on their own timeline and negotiate terms from a position of clarity.

FAQs

What happens immediately after a customer submits a card payment?

The card data is captured, encrypted, and sent through a payment gateway for authorization. This step ensures the information is protected before it reaches downstream systems.

Who decides whether a credit card transaction is approved?

The issuing bank makes the approval or decline decision after reviewing credit availability and validation checks. Neither the merchant nor the card network directly approves the transaction.

What role does a payment processor play?

The processor routes transactions, applies risk screening, and coordinates settlement with banks. It acts as the operational bridge between the merchant, card networks, and financial institutions.

How long does it take for merchants to receive funds?

Most merchants receive funding within one to two business days after settlement. Timing can vary based on provider policies, account history, and selected payout options.

Why might a transaction reverse after approval?

Issues such as invalid data, issuer blocks, or clearing errors can trigger reversals. Understanding transaction stages helps merchants identify and correct these issues efficiently.

About Leo Daboub

Leo Daboub Jr. is chief revenue officer of Atlantic Pacific Processing Systems, where he leads revenue planning and payment solution delivery for merchant and government clients. He previously served as senior vice president at TransFirst Merchant Services, guiding business development efforts and building a Government Services Division that expanded from 14 to more than 100 municipalities. Earlier roles with Payment Resources International focused on bank relationships and enterprise account development. His career reflects long-term involvement in card processing, ACH payments, and municipal finance environments.