The Basics of a Credit Card Merchant Account: How it Works

Nail down the basics of a credit card merchant account to minimize expenses for your growing business. Read the full article today!

Merchant credit card processing is crucial for so many businesses in the modern economy. If your company regularly accepts card payments, it depends on card processing to reliably capture revenue. In the big picture, credit card processing keeps your business running smoothly.

How does merchant credit card processing work? In the simplest terms:

  • A customer uses a card for payment.
  • The merchant then starts an authorization process involving its payment gateway and payment processor. 
  • The card-issuing bank approves or denies the transaction.
  • Assuming approval, the transaction completes, deposits the payment, and the card network debits the card-issuing bank.

Keep in mind that this description only scratches the surface of credit card merchant processing services. There are several steps that we glossed over to provide a very simple and streamlined overview. There are other vital actors in the process, too, like the merchant’s bank.

Finding the right partners for credit card processing can feel overwhelming. Do you need support in this complex, highly technical, and mission-critical aspect of operations?

Swipesum is here to support your key business needs with payment consulting, vendor evaluation, and much more. Our independent payments consultants are your Chief Payments Officer.

Let’s take a closer look at merchant credit card processing, including a more complete review of the process.

Credit Card Processing and Merchant Services: What Your Business Needs to Know

To a customer, merchant credit card processing is an incredibly simple process. They insert, swipe, or tap a card into or on a card reader as their payment method. Then, they receive approval (or denial) in seconds. If approved, they’re most likely soon on their way out the door or waiting for an online order to arrive.

On a practical business level — for a retail employee, for example — it’s a similar experience. The only thing a staff member has to watch out for is a denied transaction. Otherwise, the transaction is complete and the customer is on their way.

The public-facing side of accepting credit cards for payment is simple. The back end of merchant account credit card processing is extraordinarily efficient, but much more complex.

Let’s review all of the major players in merchant credit card processing. Then, we’ll look at how they work together to quickly complete several steps in the processing workflow.

A pile of credit cards seen in an extreme close-up view.

Who’s Involved in Merchant Credit Card Processing?

The major players in credit card merchant processing services are:

  • The customer. The customer is a cardholder, with a payment card issued by their bank or other type of financial institution. They use their card to make a payment, starting the processing workflow.
  • The merchant. The merchant needs to accept card payments to facilitate sales. That’s the foundational reason why merchant credit card processing exists.
  • The issuing bank. This is the customer’s bank — the financial institution that issued the card used to make the payment.
  • The acquiring bank. Also called the merchant bank, this financial institution maintains the merchant’s account. The acquiring bank allows the merchant to accept credit card and debit card payments. Acquiring banks sometimes outsource the management of merchant accounts to membership service providers and independent sales organizations.
  • The payment gateway. This entity keeps payment data safe as it passes from the merchant to the processor.
  • The payment processor. Payment processors receive authorization requests, passing them along to card networks and issuing banks and then back to the merchant.
  • The card network or card association. Card networks help to connect issuing and merchant banks and facilitate transactions. They also help to settle disputes between those banks, set interchange rates, and much more.

The Complete Merchant Credit Card Processing Workflow

The credit card processing workflow can be divided into three categories: Authorization, clearing, and settlement. Because clearing and settlement happen at the same time, they’re often grouped together.


Authorization begins when a customer uses a credit or debit card to make a payment. Those transactions can originate online or in person, using whatever processing equipment and technology is in place.

The request for payment authorization moves from the merchant to payment gateway, which then passes to the payment processor. 

The card network passes the request to the issuing bank. This is where approval or denial of the transaction actually takes place. The issuing bank ensures the card is active, valid, and has the needed available funds.

The card association then passes this decision to the merchant bank, which shares the decision with the payment processor. The last step is sharing the approval or denial information with the merchant.

Clearing and Settlement

Assuming the transaction is approved, the interaction at the physical or digital point of sale is complete. However, those approved transactions still need to be processed.

Merchants generally batch transactions together for more efficient processing. Each batch passes to the payment processor, and then to the card network. 

At this point, the issuing bank actually charges the customer’s account. The money then moves to the acquiring bank and the specific merchant account. The card network facilitates this process. Fees related to processing the payments are deducted at this time as well.

Finding the Best Merchant Credit Card Processing for Your Business

With so many steps and organizations involved, it’s impressive how generally fast, secure, and reliable credit card processing can be. 

The major issue for businesses isn’t whether or not to use credit card processing. Instead, it’s how to manage the costs associated with it while ensuring good and consistent service. While certain fees are inescapable, many other costs of credit card processing are negotiable.

Swipesum is here to help your company take more control of merchant credit card processing. We help you keep fees to a minimum. At the same time, we find providers that are the best fit for your individual and unique needs. 

As independent consultants, our only focus is on helping your business save and grow. We’re not beholden to any merchant services provider. Ready to make the most of merchant credit card processing? Book A Free Consultation.

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Michael Seaman

Michael Seaman

Michael Seaman is the co-founder and CEO of Swipesum. A veteran of the payments industry and former employee at one of the largest payments companies, Michael, along with his brother Stephen, has led Swipesum since its inception in 2016. Swipesum is committed to providing innovative payment solutions and exceptional service to its diverse clientele. In his free time, Michael enjoys traveling with his wife Kelsey and their three children, pole vaulting, and engaging in typical Midwestern dad activities.

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