It’s never been easier or faster to pay money for services rendered, thanks to credit card payments. Speed is one of the biggest benefits of sending money with credit card payments, and merchants won’t have to wait very long for the funds to clear before withdrawing them. With that said, most issuing banks need time to review and authorize the transfer of funds, which could cause a few delays.
So how long does it take for a credit card payment to process (fully complete its cycle)?
Here’s the short answer: It takes 24 hours to 48 hours for funds to arrive at a merchant’s account. It will take just as long for the funds to be updated on the customer’s available credit limit. Third-party payment processors usually have their own checks and balances in place, which means the timeline could take longer in the case of larger amounts.
The difference between “credited” and “posted”
Before deep-diving into this blog, it’s important to understand the differences between the term ‘credited’ and ‘posted’.
When a customer submits a payment, the amount is ‘credited’ immediately. This means that the bank issuer has recognized the payment. However, the amount may not be updated on the customer’s available credit for another 24 to 48 hours. During this time, the bank issuer will authenticate and authorize the payment for settlement.
As you can imagine, several things could go wrong during this process (if the customer has security alerts on their card) that could stretch the timeline to more than a week.
To understand why it takes this long, we’ll have to understand all the parties involved in facilitating credit card transactions and moving funds from one place to another.
Parties involved in credit card transactions
There are, in general, five parties involved in facilitating a credit card processing cycle:
Customer: This is the party that is using a credit card to purchase goods or services.
Card Issuing Bank: The bank account from which the customer’s credit card will withdraw funds from. This bank is a member of the card network (Amex, Discover, Visa, and Mastercard). Issuing banks send funds to the merchant’s bank (or payment processor) for the customers’ orders. It is then the cardholder’s responsibility to pay back the issuing bank based on their terms of agreement.
Merchant: This could be the service provider or seller of goods who is being paid in exchange for their work.
Payment Gateway: This is the party that works with the merchant to process payments from credit card transactions into their bank account. Gateways may also provide merchants with tools and software needed to accept cards and handle customer service.
Credit Card Network: Card networks include Amex, Discover, Visa, and MasterCard. These networks power the infrastructure needed to execute payments safely. They act as a gatekeeper for their respective card brand. They also govern the various financial institutions such as MSPs and ISOs that work together to support credit card processing and electronic payments.
The primary responsibility of these networks is to govern the embers of their associations, including any fees. They also act as an arbiter between the card issuer and their banks, maintaining the infrastructure of the card network and marketing their brand.
Regardless of the payment methods available to you, there are three steps involved:
Making a purchase
Once the customer has selected a product they like, they will present their card and insert it into the card payment machine to enter their PIN. The customer can also pay for items through an online gateway, by mail, or by phone.
At this point, the customer’s credit card data is encrypted and transmitted for approval through a secure payment gateway connected to the processing network. The customer’s credit card payment network will also step in to check that the customer has enough funds and if the card doesn’t have any security alerts.
Once the data is transmitted, the customer’s card issuer will either approve or decline the transaction. This is based on various authentication steps performed against anti-fraud programs such as Address Verification Service (AVS).
Approval of payment
If the customer’s card issuer has approved the transaction, the processor and merchant will receive an authorization response to receive the transaction information. Payment verification is a step that involves the authorization and authentication stages and doesn’t take very long. Until the funds have been transferred to the merchant, it is effectively held in limbo between the customer and the merchant.
Once they receive confirmation of payments from their payment gateway, the merchant completes the transaction by sending a receipt to the customer. In online orders (or eCommerce transactions), the merchant also prepares to ship the items to the customer. Note that the funds have yet to arrive at the merchant’s bank account.
The next step of processing the payment will take at least 24 to 48 hours (usually about three days), where the customer’s card issuer will send the requested payment amount (including a transaction fee) to the card payment network.
The card payment network will bill the merchant’s payment processor for facilitating the transaction and a payment network fee.
Finally, the merchant’s bank account receives the payment from their payment processor, which will collect a processing fee from the final amount. This, as mentioned earlier, typically takes 24 to 48 hours.
It’s worth mentioning that delays could happen during these transactions. For instance, processing might be delayed if the customer’s card gets blocked accidentally due to a security alert. The credit card issuer and payment network continue to communicate and move money (with the credit card issuer paying the acquiring bank for their cardholders’ purchases). The customer eventually pays the issuing bank.
The merchant is not involved in these steps.
How a merchant could track a transaction’s processing status
If a payment takes longer than two days to settle, the merchant may check its status. They can track the breakdown of card types in their ‘batches.’ However, this is not a straightforward process because of so many outside parties involved (the customer’s issuing bank and the merchant’s acquiring bank).
However, some payment processors do provide their merchants with reports to check this data. Make sure to get in touch with your payment processor to learn more.
Reasons for credit card payments to be delayed or declined
It is entirely possible for a credit card payment to be delayed or even declined. Below are just a few reasons why this may happen.
I) Lack of funds
This may seem obvious, but if your customer does not have enough funds in their amount, or have reached their credit limit, then they won’t have any money available to transfer. You can ask them to send the payment from a different credit card or use an alternative payment method.
II) Fraud triggers
Fraud alerts may be triggered due to suspicious activity, such as unusual purchasing patterns, bulk payments, or transactions from unfamiliar devices or IP addresses. Banks often tend to be very cautious due to the risk they carry and end up declining genuine transactions. In this case, the customer may have to call their bank to clear up any misunderstandings.
III) Canceled or expired credit card
The customer may not realize that their credit card expired and tried to make a payment only to realize that it’s no longer valid. It’s also possible for the customer to input their credit card details once and give the merchant permission to take future payments using their card. If the credit card gets expired, the merchant can send a reminder to their customer to update their payment details.
IV) Customer entered incorrect details
Customers may enter incorrect details at the terminal. This is more likely to occur if the credit card issuer performs an AVS (address verification service) check. Some customers don’t remember which address they used with their issuing bank. Again, this is a simple case of calling the card issuer and clearing up any misunderstanding.
V) The merchant opened a new account with their payment gateway
If the merchant recently opened a new account with a payment gateway, they usually have to wait longer than 48 hours to receive funds from customers. This is because payment gateways tend to be overly cautious with newer merchants and don’t process the first payout for at least two weeks. Once a merchant account has been fully established, any subsequent payouts happen according to the account’s payout schedule.
Fees charged by credit card companies to merchants
Credit card companies will charge a fee for processing payments. This amount depends on various factors. Most payment processors charge a fee for each transaction, while others charge a monthly fee. Others may charge both.
Merchants with low sales volume may find it more profitable to seek an arrangement where they are charged a percentage of each transaction to avoid a monthly fee. In the case of a high volume of sales, the merchant account can opt for monthly fees if it saves them more money.