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The Transaction Process

The diagram and notes below will walk you through a credit card transaction as it flows through the network.

  1. A cardholder visits your location and pays for a transaction using their credit card through a payment terminal, which reads the information on the magnetic stripe or chip. For this example, we'll say that a Visa credit card was used.
  2. Your payment terminal communicates with the credit card processor (let's say, Helcim) and sends information about the transaction, including the credit card details and the amount to be processed.
  3. The credit card processor (Helcim) will detect what type of credit card it is (Visa) and communicates the transaction with the appropriate card network (Visa) via an encrypted authorization request.
  4. The card network (Visa) determines the issuing bank (such as Citi Bank) and communicates the authorization request to them for review.
  5. The issuing bank (Citi Bank) will either approve or decline the transaction based on whether the card is valid, if it has been flagged for fraud, and if the funds are available. If the criteria is met, it provides a response back to the card network (Visa) with an APPROVAL CODE.
  6. The card network (Visa) then responds back to the processor (Helcim) with the approval information.
  7. The processor (Helcim) responds back to your equipment, which then displays the approval message to the cardholder.
  8. At the end of the night, the card network (Visa) will transfer the funds from the issuing bank (Citi Bank) to the processor (Helcim), which will then transfer the funds to the merchant (you).

What's amazing about this process is that most transactions go through all these steps in less than a second, providing real-time authorizations to merchants across the world. Visa alone processes thousands of transactions per second across its network, serving over 150 million transactions between cardholders and merchants worldwide every day.

The same process is employed for an ecommerce transaction, except that the customer enters their credit card information manually on your website, and the information then gets transmitted to the card brand by the merchant processor through a secure payment gateway.

Related Articles

The Credit Card Ecosystem
What is a Merchant Account
Types of Payment Processors

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