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How Transactions Work

There are four steps to processing a credit card :

  1. Authorization
  2. Batching
  3. Clearing
  4. Funding

Authorization

  1. A cardholder requests a purchase from a merchant.
  2. The merchant submits the request to the acquirer.
  3. The acquirer sends a request to the issuer to authorize the transaction.
  4. An authorization code is sent to the acquirer if there is valid credit available.
  5. The acquirer passes the authorization to the merchant.
  6. The merchant receives an approval, prints a receipt, and the cardholder leaves with the goods purchased.

Batching

  1. The merchant stores all of these authorizations in a batch until the end of the day.
  2. The merchant sends the batch to the acquirer at the end of the day to receive payment.

Clearing

  1. The batch is sent through the card network to request payment from the various issuers.
  2. The card networks distribute each transaction to the appropriate issuers.
  3. The issuer subtracts the interchange fees and transfers the amount back to the card network
  4. The card network then routes the amount back to the acquirer.

Funding

  1. The acquirer (occasionally subtracts it’s fees first) pays the merchant the remainder of the monies.
  2. The cardholder is simultaneously billed for the merchandise.