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Contents
Nowadays, users of all kinds of services are often faced with incomprehensible words, the meaning of which has to be further clarified in order to understand the whole essence of what is happening. A special misunderstanding is sometimes caused by banking terminology, on one of the concepts of which we will dwell today. Let's talk about a bank card transaction and describe in detail what it consists of.
The essence of a banking transaction
The word itself comes from the English "transaction" (translated into: operation, deal, contract), which means any agreement or contract, in a broader sense - a sale and purchase transaction. The most interesting thing is the correct spelling of the term in our language has not yet been determined, and even in the official documentation of serious financial structures one can find two variants of its spelling - a transaction and a transaction. In principle, you can use both options in your speech, then the first is most often used.
In a generalized sense, it is customary to call a bank transaction any manipulation that affects the client's bank account. This can include both transferring money from one account to another, as well as the usual cash withdrawal from an ATM. But today we will talk exclusively about operations performed on the account of a plastic card. What is a bank card transaction and how is it carried out?
Bank card transaction procedure
The most common debit transaction with a plastic card is payment for goods and services. There are 3 parties involved in making such a payment:
So, you pay for the service (or the desired purchase) using your payment card and first give it to the cashier. Most of the store employees do not even suspect that by swiping your card through a POS terminal (or inserting a chip card into the card reader of the terminal), they, with a slight movement of their hand, launch a whole chain of checks to confirm the payment. From this moment, a transaction begins, which consists of several steps that are performed in a strict sequence.
STEP 1. First, the POS-terminal reads from the card the data that is required to authorize the payment from the buyer's card account (for authorization). This data includes the card number, its expiration date, the name of the holder, the CVV2 / CVC2 authentication code and a number of service information encoded on a magnetic stripe or card chip. This information in the form of encrypted information is transmitted via a communication channel to the acquiring bank, which is engaged in servicing a specific terminal. Usually, shops enter into agreements with such banks and pay them a certain commission for each transaction.
STEP 2.The acquiring bank transfers the received data to the data processing center (DPC) of the international payment system (the most famous IPS: Visa, MasterCard, Union Pay), which serves the card (its logo will be necessarily present on the front side of the plastic). All banks participating in the payment system, of which there may be hundreds of thousands around the world, are connected to such operational centers. The data centers themselves have an extensive structure and are located in almost every country in the world - also has its own data centers. There, a check is carried out for the presence / absence of a card in the stop list, and according to the result of the check, a specific transaction is refused or approved. In the latter case, the transaction is sent to the issuing bank that issued your card and maintains the bank account to which this card is linked, and from which the expenditure operation is planned. The card number can get into the stop list, for example, if there is a suspicion of fraud.
This step is a key link in the entire chain, since it is the international payment system, which is an intermediate "interface" between the acquiring bank and the issuer, which provides the ability to pay with your card in any store in the world (!), Provided that the card and terminals support this IPS.
STEP # 3. The information is sent to the processing (authorization) center of the issuing bank, whose task is to obtain approval of the payment. Here, the processed transaction undergoes extended checks for its legality: check for fraud or for violation of the terms of service; checking the available balance of funds on the card account; finding out if the credit card limit has been exceeded; whether the PIN-code entered by the cardholder matches its real value. The complex of these checks is called authorization, and their result (if approved) is expressed in the assignment of an authorization code for the performed operation. For processing this transaction, the issuer pays a certain commission to the payment system.
STEP # 4. The response from the issuer is sent in reverse order through the payment system and comes to the acquirer, and then to the store (outlet). The client receives a check from the POS terminal with all the payment details.
For the buyer, this is where all interactions with the store end, and money for the purchase comes to the store's account, but the funds from your card account are not yet debited (!), They are temporarily blocked. The money is first transferred to the store from the acquirer's account, and only then is debited from your account after receiving the financial document for debiting from the acquiring bank. This can happen within 30 days from the date of purchase with the card in accordance with the rules of payment systems and with the current legislation.
Types of transactions
Payment card transactions can be classified into online transactions and offline transactions.
Online transactions are carried out in real time. The most common of them can be called payment for goods or services in retail outlets and customer service enterprises. It also includes money transfers from card to card and banal cash withdrawals from an ATM. This type of operation requires mandatory approval of the payment at the time of payment or transfer, and above we have described just this type of transaction.
Offline transactions are performed without all sorts of verification measures by the remote party and the consequent approval or rejection of the transaction. In this case, the transaction is pre-approved, the balance available on the bank card account is reserved, and all payment details remain in the memory of the payment terminal. The transaction itself is carried out a little later, when all operations accumulated in the terminal will be transferred via special communication channels to the serving bank.
We tried to describe all the steps that a bank card transaction goes through in simple words, but it is still obvious what complex manipulations the parties to the transaction have to perform in order to confirm the debit card transaction. Moreover, all this happens in a matter of seconds! And for those who want to dive even more into this topic, we advise you to read the article about the journey of a bank transaction from an ATM.
- 1. The essence of a banking transaction
- 2. Procedure for conducting a bank card transaction
- 3. Types of transactions
Nowadays, users of all kinds of services are often faced with incomprehensible words, the meaning of which has to be further clarified in order to understand the whole essence of what is happening. A special misunderstanding is sometimes caused by banking terminology, on one of the concepts of which we will dwell today. Let's talk about a bank card transaction and describe in detail what it consists of.
The essence of a banking transaction
The word itself comes from the English "transaction" (translated into: operation, deal, contract), which means any agreement or contract, in a broader sense - a sale and purchase transaction. The most interesting thing is the correct spelling of the term in our language has not yet been determined, and even in the official documentation of serious financial structures one can find two variants of its spelling - a transaction and a transaction. In principle, you can use both options in your speech, then the first is most often used.
In a generalized sense, it is customary to call a bank transaction any manipulation that affects the client's bank account. This can include both transferring money from one account to another, as well as the usual cash withdrawal from an ATM. But today we will talk exclusively about operations performed on the account of a plastic card. What is a bank card transaction and how is it carried out?
Bank card transaction procedure
The most common debit transaction with a plastic card is payment for goods and services. There are 3 parties involved in making such a payment:
- Acquiring bank that serves a given outlet or service enterprise. It is his POS terminal for payment that is installed at the checkout under the acquiring agreement;
- Issuing bank that issues (issues) plastic cards and issues them to its customers;
- International Payment System (IPS). It is an intermediate link for carrying out any settlement transactions between banks.
So, you pay for the service (or the desired purchase) using your payment card and first give it to the cashier. Most of the store employees do not even suspect that by swiping your card through a POS terminal (or inserting a chip card into the card reader of the terminal), they, with a slight movement of their hand, launch a whole chain of checks to confirm the payment. From this moment, a transaction begins, which consists of several steps that are performed in a strict sequence.
STEP 1. First, the POS-terminal reads from the card the data that is required to authorize the payment from the buyer's card account (for authorization). This data includes the card number, its expiration date, the name of the holder, the CVV2 / CVC2 authentication code and a number of service information encoded on a magnetic stripe or card chip. This information in the form of encrypted information is transmitted via a communication channel to the acquiring bank, which is engaged in servicing a specific terminal. Usually, shops enter into agreements with such banks and pay them a certain commission for each transaction.
STEP 2.The acquiring bank transfers the received data to the data processing center (DPC) of the international payment system (the most famous IPS: Visa, MasterCard, Union Pay), which serves the card (its logo will be necessarily present on the front side of the plastic). All banks participating in the payment system, of which there may be hundreds of thousands around the world, are connected to such operational centers. The data centers themselves have an extensive structure and are located in almost every country in the world - also has its own data centers. There, a check is carried out for the presence / absence of a card in the stop list, and according to the result of the check, a specific transaction is refused or approved. In the latter case, the transaction is sent to the issuing bank that issued your card and maintains the bank account to which this card is linked, and from which the expenditure operation is planned. The card number can get into the stop list, for example, if there is a suspicion of fraud.
This step is a key link in the entire chain, since it is the international payment system, which is an intermediate "interface" between the acquiring bank and the issuer, which provides the ability to pay with your card in any store in the world (!), Provided that the card and terminals support this IPS.
STEP # 3. The information is sent to the processing (authorization) center of the issuing bank, whose task is to obtain approval of the payment. Here, the processed transaction undergoes extended checks for its legality: check for fraud or for violation of the terms of service; checking the available balance of funds on the card account; finding out if the credit card limit has been exceeded; whether the PIN-code entered by the cardholder matches its real value. The complex of these checks is called authorization, and their result (if approved) is expressed in the assignment of an authorization code for the performed operation. For processing this transaction, the issuer pays a certain commission to the payment system.
STEP # 4. The response from the issuer is sent in reverse order through the payment system and comes to the acquirer, and then to the store (outlet). The client receives a check from the POS terminal with all the payment details.
For the buyer, this is where all interactions with the store end, and money for the purchase comes to the store's account, but the funds from your card account are not yet debited (!), They are temporarily blocked. The money is first transferred to the store from the acquirer's account, and only then is debited from your account after receiving the financial document for debiting from the acquiring bank. This can happen within 30 days from the date of purchase with the card in accordance with the rules of payment systems and with the current legislation.
Types of transactions
Payment card transactions can be classified into online transactions and offline transactions.
Online transactions are carried out in real time. The most common of them can be called payment for goods or services in retail outlets and customer service enterprises. It also includes money transfers from card to card and banal cash withdrawals from an ATM. This type of operation requires mandatory approval of the payment at the time of payment or transfer, and above we have described just this type of transaction.
Offline transactions are performed without all sorts of verification measures by the remote party and the consequent approval or rejection of the transaction. In this case, the transaction is pre-approved, the balance available on the bank card account is reserved, and all payment details remain in the memory of the payment terminal. The transaction itself is carried out a little later, when all operations accumulated in the terminal will be transferred via special communication channels to the serving bank.
We tried to describe all the steps that a bank card transaction goes through in simple words, but it is still obvious what complex manipulations the parties to the transaction have to perform in order to confirm the debit card transaction. Moreover, all this happens in a matter of seconds! And for those who want to dive even more into this topic, we advise you to read the article about the journey of a bank transaction from an ATM.
