Patent Owner Exhibit 2031, Page 1 of 19
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`How credit card
`transaction
`processing works: A
`quick guide
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`How credit card
`transaction
`processing works: A
`quick guide
`Payments
`Accept payments online, in person, and around the world with a
`payments solution built for any business – from scaling startups to
`global enterprises.
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`Patent Owner Exhibit 2031, Page 2 of 19
`
`As customer payment preferences continue to evolve, businesses
`must adapt their payment processing systems to stay competitive.
`By thoughtfully building their credit card processing systems,
`businesses can improve the customer experience, streamline
`operations and access new growth opportunities.
`Introduction
`What is credit card transaction processing?
`Credit card transaction processing: Key components
`How does credit card transaction processing work?
`How does credit card transaction processing work?
`Credit card transaction processing costs for businesses
`Why does credit card transaction processing matter for businesses?
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`Patent Owner Exhibit 2031, Page 3 of 19
`
`Improperly setting up a credit card payment processing system can
`result in additional costs, operational inefficiencies and increased
`vulnerability to payment fraud. It ’s important to understand how
`credit card transaction processing works and how to set up a credit
`card processing system. Here’s what you need to know.
`What's in this article?
`Credit card processing occurs when electronic transactions involving
`credit cards are authorised, authenticated and settled between the
`cardholder, the business and their respective financial institutions.
`This process allows businesses to accept credit card payments for
`goods or services, facilitating easy and convenient transactions for
`both the business and the customer.
`What is credit card transaction processing?
`Credit card transaction processing: Key components
`How does credit card transaction processing work?
`Credit card transaction processing costs for businesses
`Why does credit card transaction processing matter for
`businesses?
`What is credit card transaction
`processing?
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`Patent Owner Exhibit 2031, Page 4 of 19
`
`While credit card transactions are typically processed very quickly,
`what happens behind the scenes is complex. The process requires
`many components that collaborate with each other to ensure that
`funds move securely and efficiently.
`Here’s an overview of the parties that participate in this process:
`Credit card transaction
`processing: Key components
`Cardholder
`The cardholder is the individual who owns the credit card and
`uses it to make purchases for goods or services.
`Merchant
`The merchant is the business or service provider that accepts
`credit card payments from customers in exchange for goods or
`services.
`Point-of-sale (POS) system
`The POS system is the hardware and software that the business
`uses to accept and process credit card transactions and includes
`terminals, card readers and software applications.
`Payment gateway
`The payment gateway is a service that securely transmits
`transaction information between the business’s POS system and
`the credit card processor.
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`Patent Owner Exhibit 2031, Page 5 of 19
`
`Credit card processor
`The credit card processor, also called the "payment processor", is
`a company that works with the card networks and issuing banks
`to authorise, authenticate and settle credit card transactions on
`behalf of the business.
`Card networks
`Card networks – such as Visa, Mastercard, American Express and
`Discover – facilitate communication between the credit card
`processors and the issuing banks and set transaction rules and
`standards.
`Issuing bank
`The issuing bank, also called the "issuer" or "card issuer", is the
`financial institution that issues the credit card to the cardholder. It
`authorises and approves transactions, and it provides the funds
`for the purchase.
`Acquiring bank
`The acquiring bank, also known as the "acquirer" or "merchant
`bank", is the financial institution that has a contractual
`relationship with the business to accept and process credit card
`transactions. It settles funds with the issuing bank and deposits
`the funds into the business’s account .
`How does credit card
`transaction processing work?
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`Patent Owner Exhibit 2031, Page 6 of 19
`
`Credit card transaction processing varies depending on where a
`transaction takes place and what type of card is used. For example,
`an online credit card transaction will be initiated in a different way
`than an in-person card transaction. Similarly, an in-person transaction
`will work differently if the credit card is stored in a digital wallet
`compared to an in-person transaction where the customer uses a
`physical card.
`But even with these smaller variations, the overall credit card
`transaction process is mostly consistent across different types of
`transactions. Here’s a simplified overview of how the process works:
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`Patent Owner Exhibit 2031, Page 7 of 19
`
`Credit card transaction processing varies depending on where a
`transaction takes place and what type of card is used. For example,
`an online credit card transaction will be initiated in a different way
`than an in-person card transaction. Similarly, an in-person transaction
`will work differently if the credit card is stored in a digital wallet
`compared to an in-person transaction where the customer uses a
`physical card.
`But even with these smaller variations, the overall credit card
`transaction process is mostly consistent across different types of
`transactions. Here’s a simplified overview of how the process works:
`1. Initiation
`The cardholder provides their credit card information to the business.
`For in-person transactions, this means swiping, inserting or tapping
`their card. For online transactions, this means entering the card
`details manually or selecting a card from their stored payment
`methods.
`2 . Data transmission
`The business’s POS system or payment gateway captures the
`transaction details and securely transmits this information to the
`credit card processor.
`How does credit card
`transaction processing work?
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`Patent Owner Exhibit 2031, Page 8 of 19
`
`3. Authorisation request
`The credit card processor forwards the transaction data to the
`appropriate card network, which then routes the authorisation
`request to the issuing bank.
`4. Approval or decline
`The issuing bank verifies the cardholder ’s account , checking for
`sufficient funds and any potential fraud or security issues. Based on
`this evaluation, the bank either approves or declines the transaction
`and communicates this decision to the card network, which relays the
`information to the credit card processor.
`5. Authorisation response
`The credit card processor sends the authorisation response – either
`an approval or a decline code – to the business’s POS system or
`payment gateway. If the transaction is approved, the business can
`complete the sale and provide the goods or services to the customer.
`6. Settlement
`At the end of the day, the business submits the batch of all approved
`transactions to the credit card processor for settlement . The
`processor also forwards the transaction details to the respective card
`networks.
`7. Funds transfer
`The card networks coordinate with the issuing banks to transfer the
`funds for each transaction to the acquiring bank, which receives the
`funds in the merchant account. The acquiring bank then transfers the
`funds into the business’s standard business bank account , minus any
`processing fees. This entire process usually takes one to three
`working days.
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`Patent Owner Exhibit 2031, Page 9 of 19
`
`8. Cardholder billing
`The issuing bank adds the transaction amount to the cardholder ’s
`account balance and includes it in the monthly statement . The
`cardholder is responsible for paying the credit card bill according to
`the terms and conditions of their card agreement .
`Credit card transaction processing costs can vary depending on the
`type of credit card, the transaction volume and the individual
`payment processor. Businesses need to understand these costs to
`make informed decisions and minimise payment processing
`expenses.
`Here are the main types of credit card transaction processing costs:
`Credit card transaction
`processing costs for
`businesses
`Interchange fees
`The cardholder ’s issuing bank charges interchange fees for each
`credit card transaction. Interchange fees are typically a
`percentage of the transaction amount , plus a fixed fee per
`transaction. The exact interchange fee depends on the type of
`card, the business’s industry and how the card is used in the
`transaction; for instance, whether the customer swipes the credit
`card or enters their card information manually.
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`Patent Owner Exhibit 2031, Page 10 of 19
`
`Assessment fees
`Card networks often charge assessment fees for the use of their
`payment infrastructure. These fees are usually a small percentage
`of the transaction amount and can vary depending on the card
`network and the transaction volume.
`Processor markup
`Credit card processors and merchant services providers charge a
`markup fee for their services, which include handling
`authorisation, settlement and communication with card networks
`and banks. This markup can be a percentage of the transaction
`amount , a per-transaction fee or a monthly fee. For information
`about Stripe’s fee structure, go here.
`Payment gateway fees
`For online transactions, businesses may need to use a payment
`gateway, which securely transmits transaction information
`between the business’s website and the credit card processor.
`Typically, payment gateway providers charge a monthly fee or a
`per-transaction fee for their services.
`Terminal and equipment fees
`Businesses may need to invest in POS terminals, card readers or
`other equipment to accept credit card payments. These costs can
`cover purchasing or leasing the equipment , as well as ongoing
`maintenance and software update fees.
`Setup and activation fees
`Some credit card processors charge a one-off fee for setting up
`the merchant account and activating the processing service.
`Monthly and annual fees
`Some processors charge monthly or annual fees for account
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`Patent Owner Exhibit 2031, Page 11 of 19
`
`Businesses should carefully compare processing costs for different
`providers and choose the most cost-effective solution that meets
`their needs. Negotiating rates and fees, as well as maintaining a low
`chargeback ratio and adhering to PCI DSS guidelines, can help
`businesses minimise their credit card transaction processing costs.
`maintenance, reporting and access to additional features or
`services.
`Chargeback and retrieval fees
`If a customer disputes a transaction, the processor may charge
`the business a fee for the chargeback process. Retrieval fees may
`also apply if the business needs to provide transaction
`documentation to the issuing bank. Different merchant services
`providers have different ways of addressing these types of fees.
`For example, Stripe offers Chargeback Protection, which covers
`all costs associated with chargebacks and waives any fees.
`PCI compliance fees
`To ensure the security of cardholder data, businesses need to
`comply with the Payment Card Industry Data Security Standard
`(PCI DSS). Some processors charge a fee for PCI compliance,
`while others include it in their service offering.
`Why does credit card
`transaction processing matter
`for businesses?
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`Patent Owner Exhibit 2031, Page 12 of 19
`
`Credit card transaction processing directly impacts a business’s
`ability to provide convenient and secure payment options for
`customers, which can affect sales, customer satisfaction and overall
`growth. Finding the optimal credit card processing system offers
`several benefits in these areas, including:
`Enhanced customer experience
`By offering a simple, convenient credit card payment experience,
`businesses can meet the evolving needs of their customers,
`leading to increased customer satisfaction and loyalty. The
`benefits are even greater with a unified commerce model, where
`businesses integrate all sales channels, data and backend
`systems into a single, seamless platform.
`Increased sales and revenue
`Credit card payments can boost sales for businesses by lowering
`the barriers that customers face when making a purchase.
`Generally, customers spend more when using credit cards
`compared to cash. Accepting credit cards also enables
`businesses to accept payments in different currencies without
`needing to deal with conversion, further expanding their market
`reach.
`Improved cash flow
`Credit card transactions are typically settled and deposited into
`the business’s bank account within one to three working days,
`resulting in faster access to funds compared to other payment
`methods such as cheques.
`Secure and compliant transactions
`A strong credit card processing system helps protect both the
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`Patent Owner Exhibit 2031, Page 13 of 19
`
`business and its customers from fraud and data breaches by
`adhering to security standards such as PCI DSS. This compliance
`is important for safeguarding sensitive customer information and
`maintaining trust .
`Competitive advantage
`Accepting credit card payments and providing a simple payment
`experience can give businesses a competitive edge over
`competitors that do not offer these options, helping them attract
`more customers and increase their market share.
`Cost optimisation
`By carefully selecting the right credit card processor and
`negotiating favourable rates and fees, businesses can streamline
`operations, minimise processing expenses and maximise their
`cost margins.
`Access to valuable data and insights
`Credit card processors often provide detailed transaction data
`and reports, allowing businesses to track sales, identify trends
`and make data-driven decisions that can optimise their
`operations and marketing strategies.
`Reduced risk
`By accepting credit cards, businesses can minimise the risks
`associated with handling large amounts of cash, such as theft ,
`loss or mismanagement .
`Adaptability
`A meticulously designed credit card processing system enables
`businesses to embrace flexibility and adapt to new payment
`technologies, such as contactless payments or digital wallets,
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`Patent Owner Exhibit 2031, Page 14 of 19
`
`Setting up a credit card processing system in a strategic way enables
`businesses to access these benefits and create a more robust ,
`adaptable foundation for growth and stability.
`Working with a strong payment processing provider will help ensure
`that your credit card transaction processing system is tailored to your
`needs while allowing you to provide a secure, efficient and compliant
`customer experience. A payment processing provider such as Stripe
`can simplify the setup process and give your business direct access
`to its expertise in managing credit card transactions. To learn more
`about how Stripe helps businesses with credit card transaction
`processing, start here.
`helping them stay ahead of industry trends and cater to evolving
`customer preferences.
`The content in this article is for general information and
`education purposes only and should not be construed as
`legal or tax advice. Stripe does not warrant or guarantee
`the accuracy, completeness, adequacy, or currency of the
`information in the article. You should seek the advice of a
`competent lawyer or accountant licensed to practise in
`your jurisdiction for advice on your particular situation.
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`Patent Owner Exhibit 2031, Page 15 of 19
`
`See all payments articles
`More articles
`How to become a payment aggregator: A how-to guide for
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`Payment facilitators (pay facs) vs independent sales organizations
`(ISOs): How they ’re different and how to choose one
`Payment processor vs payment facilitator: How they ’re different and
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`Patent Owner Exhibit 2031, Page 16 of 19
`
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`Patent Owner Exhibit 2031, Page 17 of 19
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`Patent Owner Exhibit 2031, Page 18 of 19
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`Patent Owner Exhibit 2031, Page 19 of 19
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