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Over the years, credit card payments have become a popular payment method. Millions of customers make credit card purchases daily in the U.S.. Statistics show that 27% of all payments were made with credit cards in 2020.
As a credit card user or a business owner, you must have often wondered how long a credit card payment takes to process. Even though many merchants accept credit card payments, many do not know how long it takes for the payment to process.
When a person makes a credit card payment, the merchants do not receive credit immediately to their bank account. Rather, it may take a few business days for the funds to reflect in their account.
So, how long does a credit card payment take to process? Certain factors can cause the processing time to differ, but it typically takes about 48 hours. However, it could process electronic payments quicker or later.
How Does a Credit Card Transaction Work?
There are several parties involved in a credit card transaction. Firstly, the credit cardholder swipes/taps/inserts their credit card at the POS terminal. Between the swiping and merchants receiving payment, your payment network (MasterCard, VISA, etc.) sends an authorization for your transaction to the acquiring bank (i.e., the merchant’s bank).
Next, your payment network verifies from the cardholder’s bank (issuing bank) if the cardholder has enough money to pay for their purchase. After confirmation that you have enough funds, the transaction is successful, and the customer receives a receipt. However, funds don’t appear in the acquiring bank immediately.
For the merchant to receive funds, they must send to their bank all the transactions carried out in their store daily. This batch processing involves the merchant’s bank directing the transactions to the appropriate payment processor.
Parties Involved in Payment Processing
There are about five parties involved in every payment processing. These include:
Cardholder/Customer:In this context, a customer or cardholder is someone paying for goods or services with a credit card.
Issuing Bank:Every credit card is linked to a bank account. The bank account linked to the customer’s credit card is the issuing bank. This bank issues funds to the merchant upon successful payment.
Merchant:A merchant is a person or business that offers goods or services for sale
Acquiring Bank:In simple terms, this is the merchant’s bank. It is the bank that manages the merchant’s business account. Thus, the acquiring bank receives the funds when a customer makes a payment.
Payment Processor:This is a financial entity that helps the merchant process and manages credit card payments.
The credit card payment association is also involved in payment processing. Examples of payment associations are VISA and American Express. They process credit card payments and provide a framework for customers to pay merchants.
How Does Payment Processing Work?
Payment processing is a two-stage process. The verification stage includes authorization and authentication and takes place within a few seconds. This is the short period between the card swipe and payment verification in the store. A payment processor is essentially the middleman between the merchant and banks. Merchants typically utilize a payment processor like Stripe or PayPal to manage customer transactions.
After the payment processor receives your daily batch of authorized payments, it forwards the transactions to the card networks (MasterCard, VISA, etc.), who then request fund settlement from the issuing bank.
Then, the issuing bank sends the funds to the merchant’s bank. The funds are added to the cardholder’s credit card bill immediately, and it can take 24 to 72 hours to get to the merchant’s bank account.
How Long Does It Take for Banks to Process a Credit Card Payment?
As we have explained, when you walk out of a store with a credit card purchase receipt, it does not mean that the merchant has received funds into their bank. Usually, most credit card companies take about two business days to process payments and send funds to the merchant’s bank. This also applies to phone and online payments.
Thus, if you make a credit card payment on a Friday, the merchant will likely receive it the following Tuesday. Also, if a cardholder makes a credit card payment on a weekend or a bank holiday, it will not be sent until the following non-holiday weekday.
Thus payments received on weekends and the following Monday are all sent together. Afterward, the merchant would receive funds in less than 72 hours.
Sometimes, your credit card issuer might immediately show your authorized purchase as a pending charge on their app. Sometimes, it might take days to show up as a pending charge. Your credit card account receives the credit deduction in both cases.
Tracking Credit Card Transaction Status
As a merchant or a customer, you can track the status of your credit card transactions. If, as a merchant, you haven’t received funds at the expected time, you should track the transaction’s status.
For inquiries about a pending transaction, you can reach out to your credit card company. You can also check the transaction status using the payment processor which is a better option to take up the matter with the issuing or acquiring bank.
Also, you can contact your payment processor support and request a transaction report. This report would contain the entire batch of transactions sent. So you might have to search for the actual transaction in question.
You would find two categories of transactions in the report- settled and collected. Settled transactions are complete transactions, with funds sent to your account. The collected transactions are pending and still being processed. From the report, you might be able to know the due date to receive the funds in your bank account.
Can a Bank Decline a Pending Credit Card Transaction?
A pending charge might remain pending for a while. In this period, the merchant can modify the transaction (for example, to include an approved tip). However, a bank cannot decline any transaction that has been authorized and is pending.
Even if the customer exceeds their credit limit, they can be temporarily allowed to purchase goods if they have made a payment to their credit account waiting to post and have enough money in their checking account. The only exception is if the merchant asks the bank to, stating they no longer wish to receive the pending funds.
How long does a credit card payment take to process? Well, a lot goes on between the swipe of a credit card and the funds reaching the merchant. Usually, the merchant will receive funds between 24 and 72 hours. During this period, the bank cannot decline your transaction.
While it’s not crucial to have complete knowledge of the inner workings of credit card payment processing, it’s certainly helpful to know why credit card transactions take as long as they do.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.