How does a credit card transaction work?

This will be a more general tutorial and will not delve deeply into specifics. Please note that this information is meant only for credit card transactions and that this information does not apply entirely to a debit card transaction which is completely different.

Here is a basic run down of a credit card transaction run on a terminal capture software:
Customer wants to purchase something.

1. Your customer swipes their card.
2. The card information gets sent from your computer, or terminal to your processor.
3. Your processor then sends the transaction to your customer's bank (aka issuing bank).
4. Your customer's bank either approves the transaction or declines it.
5. If approved the bank will place a "hold" on the funds you have claimed. This will appear as a "pending" transaction on your customer's online banking.
6. The bank sends the response (Approval or Decline) to your processor.
7. Your processor sends your software the response.
8. If approved the transaction is stored in your software in a thing called a "batch."
9. All subsequent transactions will aggregate into the same batch.
10. At the end of the day your batch will be finalized or "settled" which means you are done for the day and then your software will send the whole batch (all of the transactions) to your processor. Your processor will then bill all of your customers (this is when your customers see the transaction "post" to their account) and then your processor will deposit the money into your bank account.

This is a basic credit card transaction in a nut shell. There are many more things that occur behind the scenes but they are not pertinent in generally understanding how a credit card transaction works.