The Life Cycle of a Credit Card Transaction
This article deals with the life cycle of a credit card transaction. This method is used for both retail and Internet / MOTO transactions. Processing events and activities may vary slightly for any one merchant, merchant bank, or Issuer, depending on card and transaction type, and the processing system used.
The follow steps listed below is what happens when a credit card is processed.
- Cardholder presents the credit card at the point-of-sale. For Internet or Keyed in transactions, the cardholder provides the merchant with the account number, expiration date, billing address and any special codes on the card.
- Merchant swipes the card or enters the information by hand, enters the purchase amount and transmits the authorization request to the Acquirer.
- Acquirer electronically sends the authorization request into Interchange.
- Interchange passes on the authorization request to the Issuer.
- Issuer approves or declines the transaction.
- Interchange forwards the Issuer’s authorization response to the Acquirer.
- Acquirer forwards the response to the Merchant.
- Merchant receives the authorization response and completes the transaction accordingly.
- Merchant closes the batch and submits the transactions to the acquirer through their merchant account.
- Acquirer electronically submits transactions into Interchange for settlement. It also credits the merchant’s checking account for the submitted transactions once settlement information is received from Visa and MasterCard Interchange (called funding).
- Interchange facilitates settlement by sending settled transaction information to the issuer and acquirer and providing both with information on what to credit the merchant, what to debit the cardholder and the type and amount of the interchange fees that are to be paid by the acquirer to the issuer.
- Issuer posts the transactions to the cardholder accounts and sends the monthly statements to its cardholders.
- Cardholder receives statements and pays issuer.
Member banks (both Issuers and Acquirers) do not always handle the processing of the transactions (authorizations, clearing and settlement) themselves. In many cases they outsource this to third party processors. Examples are Global Payments, Vital, Paymentech and First Data.
Front-End Vs. Back-End Platforms
Since credit card processing terminals and systems talk directly to an authorization or front-end platform, it is important to understand which terminals are compatible (certified) with what platforms. Contact us for a detailed compatibility matrix.
This information has been provided by USMS.