The Anatomy Of Understanding Credit Card Transactions

Many people wonder exactly what happens when they swipe their credit cards, or how exactly an online transaction occurs on the credit card companies and merchants end. To better understand how your merchant gets paid, we need to break it down step by step.

Point of purchase

Either online or in a brick and motor store location, your credit card number and information is entered into the system. Either secure hardware (in a store) or software (online transactions) takes your credit card information and processes the order. For transactions in a store you will need to enter your 4 digit pin in many cases, with the exception of small amounts to some locations. For online purchases, you may need to enter the 3 digit CVC code on the back of your credit card. Now your purchase is verified and ready for authorization.


Once verified, your charge will need to be verified with the credit card company. The credit card company will need to see if you have enough credit to make the purchase. Your data is transferred to a authorization network to approve or deny the amount being charged. It will check your credit limit and for any holds on your account, if all these checks pass the network will forward approval. If there is not enough credit left or if there are any issues such as a lock on your account a NOK message will be sent to the merchant and your charge will be declined. Sometimes a 3rd option will come into play where the credit card company asks the merchant to contact the credit card company in order to verify the purchase and the card holder. Some credit card companies and merchants will have the funds clear and post right away, while others will hold them in batches to be sent to the processor all at once for clearing and settlement.


The software will receive the approval notice from the authorization network. You will be notified at this time, and the charge will go through. Once approved the transaction is uploaded for record keeping to the authorization network.

Clearing and Settlement

Your credit card will forward the money to the merchant, usually in one business day. This happens via the processor which will send the transactions to your credit card company. Once this happens the merchants bank will be credited with their earnings and the process is now completed. When you notice a transaction is no longer pending the merchant has been paid.

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