What Is a Credit Card Payment?
A credit card payment is when a customer pays a business using their credit card. The money comes from the card issuer (not directly from the customer’s bank account) and the customer pays their credit card bill later.
The Credit Card Payment Lifecycle (Step-by-Step)
1. Authorization
The customer gives the merchant their credit card info (physically or online).
? The merchant sends a request to approve the charge via their payment processor.
2. Authentication & Approval
The card network (Visa, Mastercard, etc.) sends the request to the cardholder’s bank (the issuer).
The bank checks:
Is the card valid?
Does the customer have enough credit?
Are there signs of fraud?
If everything is okay, the bank approves the transaction.
If something is wrong, the transaction is declined.
3. Authorization Hold
When approved, the amount is placed on hold on the customer’s credit limit—but it hasn’t been moved yet.
This is like a temporary reservation for the funds.
4. Clearing & Settlement
At the end of the day, the merchant sends a batch of completed transactions to their processor to be cleared.
The processor sends the final charges to the card networks, which:
Route the transaction to the issuing bank.
The bank transfers the funds to the merchant’s bank (minus fees).
5. Merchant Receives Funds
The merchant usually receives the money within 1–2 business days, depending on the provider.
Funds are deposited into the merchant's account (often called "merchant settlement").
6. Customer Pays Their Credit Card Bill
The customer sees the charge on their credit card statement and pays the bank later.
Payment due dates and interest depend on the customer’s credit card agreement.
7. Chargebacks & Disputes (If Needed)
If the customer disputes the charge (e.g., fraud or product issues), they can initiate a chargeback.
The bank investigates and may reverse the transaction, pulling the funds from the merchant’s account unless the merchant can prove the charge was valid.
Quick Summary
| Step | What Happens |
|---|---|
| 1 | Customer initiates payment |
| 2 | Bank checks and approves transaction |
| 3 | Funds are held on customer’s credit card |
| 4 | Merchant submits batch for processing |
| 5 | Merchant receives payment |
| 6 | Customer pays their card issuer |
| 7 | Disputes/chargebacks handled (if needed) |
