How does an internet credit card transaction occur?

There are four parties involved with an online credit card transaction:

• The merchant bank that setup the seller’s merchant account.
• A transaction clearinghouse such as First Data Corp. or First USA
• The buyer
• The issuing bank (a fancy way of saying the bank that issued the customer’s credit card)

Below are the most common steps for completing a credit card transaction:

1. Customer places a product in the shopping cart
2. During checkout, a total is calculated
3. The customer enters credit card and shipping information
4. When the order is submitted, the information is encrypted and sent to a credit card clearinghouse where the data is verified and checked for fraud
5. After the clearinghouse ensures that funds are available, it places a charge for the total amount on the customer’s card and deposits the funds in the merchant’s merchant account.
6. The merchant bank sends the funds to the merchant’s local business account where the merchant can then access the funds.

Finally, here is a diagram of the process:

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