What happens when you swipe your card?

Ever thought what happens when you swipe your
card over the small "electronic box" in a consumer shop?

If you haven't, well this post
would be interesting to read!!

Before we proceed further you should be familiar with the data on your card.
Cardholder name, PAN (Card Number), Expiry data, CVV/CVV2, Track data on the magnetic strip are some of the key details on your card.

OK! Lets get to the point!

When you swipe your card at a POS terminal (tip: do a google search about POS) we may breakdown the transaction into three main phases. It would be:

1. Authorization
2.Clearing
3. Settlement

Now lets see this in brief!

Authorization: 

This simply means that you are trying to prove the genuineness of the card which you carry, if it is genuine, also allowing the merchant to bill you for the product you purchased.

Checkout the below pic:

Understanding Issuer and Acquirer:

Who provides a credit card to you?...............Issuer
Where does a merchant bring his POS Machine from?..........Acquirer

In both the cases they are nothing but BANKS! (Issuer and Acquirer technical definitions are different. For better understanding, I explained as above)

In this phase Cardholder (you) and Merchant would be at the beginning and ending what happens in between is dealt by Acquirer->Payment Brand Network-> Issuer

Step 1-7: When you swipe in the card on Merchant's POS the details in the magnetic strip are forwarded to Acquirer to verify the authenticity of the card and determine the payment brand (remember this is what you are trying to prove primarily). The details are forwarded to "Payment Brand Cloud" (depends on you card brand like Visa, Master Card, JCB, AMEX or Discover).

Assuming the card is Visa Inc.'s- the details are forwarded to Visa to check the issuer. Visa determines the issuer and asks the issuer to approve the payment.

Issuer (who provided the card to you) checks various things like credit limit, availability of funds etc.
and approves (if everything looks fine).

Now, Step 5, 6, 7 are nothing but acknowledgment vice-versa which results in printing of a transaction copy from POS. (transaction copy is a receipt of your act. This is not your actual bill)

This usually happens in less than 10 seconds!

Clearing:

 You are not involved here!😊

Take a look at this:

Step 1-3: 

This phase aims out at billing the customer and reconciling the transaction data.

Acquirer confirms to Payment Brand once the receipt is printed at POS terminal. Payment Brand does the same to Issuer.

Issuer acknowledges Payment Brand and notes that transaction is successful and starts to prepare a bill to its customer.

Finally, Payment Brand provides the "transaction reconciliation" to Acquirer.

Settlement: 

This is the most important part isn't it? 😉

Customer is top priority to everyone! Hence Authorization phase is very fast (it is designed that way!). Now "Acquirer-Payment Brand-Issuer-Merchant" should settle the money you swiped among themselves for all their efforts.

So, Once you leave the shop with your product, Merchant anticipates a message from his Bank (Acquirer).

Checkout the below pic:

Step 1-4: 

Issuer (your card provider) asks Payment Brand to name the Acquirer (Merchant's bank) to release funds from your account.

After the details are confirmed, Issuer releases funds to Acquirer (remember that Payment Brand has commission for each transaction you make).

Acquirer receives the payment from the issuers and credits amount to Merchant's account (Merchant awaits for this confirmation message).

At same time, Issuer "bills"you (this is your actual bill) and closes the transaction!!

Hope you like my post! Now that you know what really happens when you swipe your card, remember it each time you do it!! 😤

I shall come up with another post explaining the financials involved (What happens to your money when you swipe your card)!