A Complete Guide to How Credit Card Processing Works in the UK

Receipt Machine

Accepting credit card payments at your business might seem simple on the surface. All you need is a credit card processing machine and a merchant account.

But behind the scenes, credit card processing is surprisingly complex. There are multiple banks and payment processors involved, each of which has to look over every transaction and move funds around.

Knowing how this process works is important for understanding your credit card processing fees and how long it takes to get paid. In this guide, we’ll explain everything business owners need to know about how credit card processing works in the UK.

What Is Credit Card Processing?

Credit card processing is the behind-the-scenes process involved in settling a credit card transaction. Money needs to move from a customer’s credit card issuer to your merchant account.

However, it’s not a one-step transaction. As we’ll explain, the funds you receive as a business owner usually come from your merchant services provider, not your customer. Your merchant account provider is then paid back by your customer’s credit card issuer.

Credit Card Processing: Who’s Involved?

A few key players are involved in processing credit card transactions:

Issuing Bank

The issuing bank is the bank that issues a customer’s credit card and provides their line of credit. Examples of issuing banks include Barlcays and HSBC, both of which offer a wide range of credit cards in the UK.

Acquiring Bank

The acquiring bank is the bank where your merchant services provider maintains your merchant account. It’s possible that the same bank will act as both the issuing bank and the acquiring bank for a transaction, although this isn’t required for transactions to flow smoothly.

Merchant Services Provider

The merchant services provider is the company you contract with to accept credit card payments. Your merchant services provider is responsible for providing your business’s point-of-sale system and payment gateway. It holds a merchant account for you at the acquiring bank and has relationships with most issuing banks as well.

Card Networks

The card networks, including Visa, Mastercard, American Express, and Discover, serve as the middlemen between issuing and acquiring banks. They communicate key information about a customer’s credit card transactions, such as how much money was spent.

How Does Credit Card Processing Work in the UK?

Now that you know the different entities involved in credit card processing, let’s break down how the process works.

Step 1: Authorisation

Authorisation happens when a customer swipes, dips, or taps their credit card using your point-of-sale or submits their card information using your online payment gateway. It’s a multi-part process that involves communicating with the issuing bank to approve a transaction.

First, transaction information is processed by your merchant services provider and sent to the acquiring bank. The acquiring bank then passes on the transaction information to the card network, which in turn passes it on to the issuing bank.

The issuing bank checks the transaction to make sure there are no signs of fraud and that the customer won’t exceed their credit limit. If there are no flags, the communication chain will be reversed to send a signal to the merchant provider to accept the payment.

While a lot of coordination is required to authorise transactions, the entire process usually only takes a few seconds.

Step 2: Merchant Payment

At the end of each business day, your merchant services provider will automatically collect a list of all authorised payments from your point-of-sale and payment gateway. It will then transfer funds into your merchant account, which you can then move into your business bank account.

Note that at this point, your merchant services provider is advancing your business the funds from your transactions. In most cases, the issuing banks for each of your transactions will not yet have issued payment from customers’ credit lines.

Step 3: Settlement

Settlement is the process by which a customer’s issuing bank pays for their purchases. The issuing bank initiates a payment to the acquiring bank using the card networks. The acquiring bank places the funds in the merchant service provider’s account, effectively repaying them for the funds they advanced to your business. The issuing bank is repaid when the customer pays their credit card bill.

Why Is Credit Card Processing Necessary?

The mechanism for processing credit card transactions can seem convoluted, but there are good reasons why the system involves so many different players and steps. Ultimately, it’s much easier for banks and other financial institutions to talk to each other than to individual business owners.

Say, for example, you as a business owner had to request payment from an issuing bank directly every time a customer used a credit card. You’d have to identify your business to the bank, prove that you’re selling what you say you sell, and prove that the transaction is real. You’d also have to provide instructions for where the bank should send the payment.

That might work if there were only a few businesses in the UK accepting credit cards. But there are millions. Card-issuing banks would be inundated with requests for payment from businesses that they can’t properly vet for fraud.

Merchant service providers step in to verify businesses and vouch for the veracity of their transactions. They establish merchant accounts at acquiring banks so that issuing banks have a limited number of places to send funds to. In addition, they have relationships with most issuing and acquiring banks to ensure that payments flow smoothly.

Card networks offer dedicated communication channels for banks to automatically share information about credit card transactions. That enables authorisation and settlement to take place much more quickly than if issuing and acquiring banks had to communicate directly with one another about every transaction.

How Long Does It Take To Process a Credit Card Transaction?

Credit card transactions typically take two to five days to fully settle after being authorised. The exact amount of time depends primarily on the issuing bank, which may conduct additional fraud checks on a transaction before sending funds to the acquiring bank.

Notably, this doesn’t mean that it always takes two to five days for your business to get paid. Many merchant services providers in the UK are able to offer next-day payments since they’ll simply advance your funds before a transaction is settled. Some merchant services providers even offer near-instant or same-day payments, although they may charge extra fees for this service.

While you won’t receive your payout from a credit card transaction as quickly as you would from a cash payment—which is instantaneous and doesn’t require a merchant account—the future of payments in the UK appears increasingly cashless.

Notably, it takes the same amount of time to get paid out from a credit card transaction as it does to get paid out from a debit card transaction or contactless payment from Apple Pay or Google Pay.

For more on how to accept Apple Pay, head over to our guide.

What Are the Fees for Credit Card Processing?

Every step in the cycle of processing a credit card transaction incurs a fee. For example, merchant service providers charge a fee for advancing your payment, and issuing banks charge a fee for enabling customers to buy something on credit. Card networks also charge a fee for facilitating communications between issuing and acquiring banks.

All of these credit card processing fees are lumped together into a single fee on your merchant account statement. Usually, your fee is subtracted from the funds your merchant service provider sends you, so you don’t have to worry about paying it back.

Credit card processing fees can vary from 1.2% to 3% depending on the type of card your customer pays with, what country it was issued in, and whether they made their purchase online or in person.

How Does Debit Card Processing Work?

Debit card processing follows the same series of steps as credit card processing. However, there are a few important differences during the authorisation and settlement steps.

During the authorisation phase, the issuing bank will check whether the customer has sufficient funds to pay for a transaction. For a credit card purchase, that means checking the customer’s available credit. But for a debit card purchase, the issuing bank will check whether the customer has enough cash in their chequing account.

During the settlement phase of a credit card purchase, the issuing bank will pay the funds out of a customer’s credit line. The customer doesn’t have to pay the issuing bank right away but when they pay off their credit card bill. However, for a debit card payment, the issuing bank will take funds out of the customer’s chequing account.


Credit card processing is more complex than it seems at first glance. Your merchant services provider, its acquiring bank, your customer’s issuing bank, and the card network all need to work together to authorise and settle transactions. This process ensures that payments flow smoothly and quickly while mitigating the risk of fraud.

Want to accept credit card payments at your business? Check out our guide to opening a merchant account to get started.

Frequently Asked Questions

Who pays for credit card processing?
Businesses are responsible for paying credit card processing fees. Usually, fees from all of the involved banks, the card network, and your merchant services provider are combined into a single fee on your account statement. Businesses in the UK aren’t allowed to charge customers a surcharge fee for using a credit card.
Do credit card transactions go through immediately?
Credit card transactions are typically authorised in a few seconds. Authorisation signals that the bank that issued a customer’s credit card approves the transaction. However, the process of actually transferring funds and settling the payment can take up to five business days.
How does a credit card work in the UK?
Credit cards allow customers to pay for goods and services on credit. The bank that issued a credit card advances payment to a business’s merchant services provider. The customer then pays back the card-issuing bank when they pay off their credit card statement.
Written by:
Michael is a prolific business and B2B tech writer whose articles have been published on many well-known sites, including TechRadar Pro, Business Insider and Tom's Guide. Over the past six years, he has kept readers up-to-date with the latest business technology, corporate finance matters and emerging business trends. A successful small business owner and entrepreneur, Michael has his finger firmly on the pulse of B2B tech, finance and business.