May 22, 2024

What Is a Credit Card Life Cycle & How Can You Manage It?

The credit card payment life cycle is an easy and seamless process for the customers. Customers simply make purchases using their credit cards, and the corresponding amount gets noted in their accounts.

However, the credit card payment process is not as simple for business owners. For the businesses accepting credit card payments, the payment process involves multiple steps and goes through several stages, and is a complex cycle.

If you own and run a business, knowing the credit card cycle can help you manage the business operations better.

What is a Credit Card Life Cycle

Hundreds of billions of card-based transactions take place around the world every year. These transactions may be over-the-counter or online. All these transactions are unique in their way, still, they follow the same essential steps that allow the merchants to receive payments for their customers. The steps involved in successfully executing a card-based payment make up the credit card lifecycle.

Key Players Involved in the Credit Card Life Cycle

It is crucial for merchants to understand the who’s who of a credit card life cycle and know what they do to make the transaction happen. The key players involved in a credit card payment are:

Customers: The customer is the cardholder who uses the card to make a payment. The cardholder can use the card to make a payment by physically using the card at the point-of-sale (POS) or using it for a remote transaction over the phone, mail, or online. When the customer makes a card payment, the transaction details are sent to the credit card company as a pending credit charge.
Merchants: A merchant is any sole proprietor, business, or corporation that offers products or services for sale in exchange for credit card payments. The merchant may offer multiple payment acceptance platforms for their customers’ convenience like POS terminals or other payment gateways like online payments.


Issuer: An issuer is the entity that offers credit cards to customers. Customers have a variety of options to choose from the best credit cardissuers. The issuer is responsible for authorising and sending funds to the merchant when a customer uses a credit card.
Acquirer: The financial institution responsible for holding the merchant accounts is known as the acquirer. A business that accepts card payments needs to maintain a merchant account or a sub-merchant account. Acquirers are key players in the payment cycle and are responsible for passing transaction requests and authentication data between merchants and the card associations.
Card Associations: Card associations are the connecting link between different parties like the customer, issuer, acquirer, and merchant. Card associations are the governing bodies of credit card transactions and ensure secure and seamless payment processing.
Payment Processors: Payment processors are vital to the card payment cycle and process the transactions for the merchants and their acquiring financial institutions. Payment processors make the payment process smooth and hassle-free for the customers.

The Process of the Credit Card Life Cycle

The credit card life cycle process involves four steps.

Step 1: Payment Authorisation

When a customer gives his credit card details to the merchant at the POS or remotely, the process of payment authorisation begins. The cardholder details are sent to the acquirer and the payment processor over a secure platform, after which, the transaction details are sent to the issuer and the card brand.

The issuer confirms that the cardholder has enough funds in his account to make the transaction, and then the card association gets an authorization response code for the transaction. The acquirer receives this code, and the merchant gets the information regarding the approval or rejection of the transaction.  

Step 2: Batching

Batching is the second stage of the car payment life cycle where the merchant submits the batches of transactions posting reviewing. Until this point, the transaction remains pending. Merchants can do batching manually or automatically as often as they need to.  

Step 3: Clearing

Once the merchant sends a batch of transactions, it goes to a series of entities like the acquirer, who sends it to the payment processor, then to the card network, and finally to the issuer. On receiving the batch, the issuer deducts the transaction amount from the cardholder’s account. The interchange fees are also charged at this stage.

Step 4: Settlement

Settlement is the last stage in this cycle where the issuer sends the funds to the merchant bank, which deposits the money in the merchant’s account, and the merchant gets paid.

How to Manage the Credit Card Life Cycle

While credit card payments are convenient, they carry a fair amount of risk. There can be cases of chargebacks, frauds, and high interchange rates. In extreme cases, the merchant may end up losing his merchant account too. To manage these risks, the merchant can do the following:

Avoid too many manually keyed-in transactions as they are more prone to fraud.
Provide phone or online reservations to customers to pay in-store as these card-present transactions have the lowest risk.
Provide the maximum amount of cardholder data possible.
Settle batches more frequently, preferably daily.
Use authentication and fraud-prevention tools to eliminate the chances of fraud.

The Final Word

The credit card life cycle involves multiple steps, and understanding the stages involved in the card transactions can help the merchants reduce the chances of fraud. It will also go a long way in providing more efficient services to the customers.

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