How Payment Processing Works

How Payment Processing Works

Understanding the basics of how card payments flow helps you troubleshoot issues and answer customer questions.

The Payment Flow

1. Authorization — When the customer swipes, taps, or enters their card, NMI asks the card issuer (the customer's bank) if the card is valid and has enough funds. The bank responds with "approved" or "declined."
2. Capture — Once authorized, the funds are "captured" — this means the money is earmarked to move from the customer's account to yours. In CloudFFL, this happens automatically when the payment is confirmed.
3. Settlement — At the end of the day (or on a schedule), NMI settles all captured transactions. The money moves from the customers' banks to your merchant account, minus processing fees.

Key Terms

Term	What It Means
Authorization	Bank approves the charge (money is held but not yet moved)
Capture	The charge is finalized and queued for settlement
Settlement	Money actually transfers to your bank account
Void	Cancel a transaction before it settles (no charge to customer)
Refund	Return money after settlement (takes 3-5 business days)
Decline	Bank rejected the transaction (insufficient funds, fraud hold, etc.)

Processing Fees

Every card payment has a processing fee, typically a percentage of the transaction plus a flat per-transaction fee (e.g., 2.9% + $0.30). These fees are set by your NMI merchant agreement and vary by card type.