Payabli platformPay In conceptsTransaction lifecycles

Credit card payments cycle

Learn how credit card transactions work

Applies to:DevelopersPartnersPaypoints

This guide covers the basics of the credit card payments cycle.

Credit card terms

Familiarize yourself with the basic concepts involved in a card transaction.

  • Cardholder: The person to whom a credit card belongs.
  • Issuing bank: The bank that issued the cardholder’s credit card.
  • Processor: A third-party entity that handles the technical parts of credit card transactions on behalf of the merchant.
  • Paypoint: In this context, a paypoint is an individual merchant.
  • Sponsoring bank: Also known as an acquiring bank, the sponsoring bank acts as an intermediary between the merchant and the credit card networks.

The credit card process

Here’s an overview of the basic credit card process. It has three phases: authorization, clearing, and settlement.

Authorization phase

1 Paypoint

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2 Card Processor

Processes the transaction details with the cardholder’s bank.

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3 Cardholder Bank

Verifies the transaction and transmits the approval or decline back to the paypoint.

1

The customer dips, taps, swipes, or manually enters the card info into the paypoint’s credit card terminal or website. Payabli supports acceptance of Visa, Mastercard, American Express, Discover, JCB, and Diners Club cards.

2

Information from the card is transmitted to the card processor.

3

The card processor sends transaction detail to the cardholder’s bank. The cardholder’s bank responds with an authorization or a decline and the card processor sends that to the paypoint’s terminal or website.

Clearing phase

1 Paypoint

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2 Card Processor

Acquiring bank or processor sends the batch of authorized transactions to the appropriate payment networks for clearing.

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3 Payment Networks

Networks route the transactions to the issuing banks.

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4 Issuing Bank

Checks the transaction and records it as a debit to the cardholder’s account.

1

The paypoint gathers and transmits the batch of authorized transactions to the processor.

2

The acquiring bank or payment processor sends the batch of authorized transactions to the appropriate payment networks for clearing.

3

The payment networks route the transactions to the appropriate issuing banks.

4

The issuing banks check the transactions for validity and fraud, and make sure the cardholder has enough funds to cover the charge. They then calculate and gather the amount needed to settle the batch.

Settlement phase

1 Issuing Banks

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2 Card Processor
or
Acquiring Bank

Route the funds to the paypoint’s bank account.

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3 Paypoint’s Bank

Credits the merchant’s account with the transaction amount.

1

The issuing bank routes funds for settlement to the appropriate processors or acquiring banks.

2

The processors or acquiring banks then route the funds to the paypoint’s bank account.

3

The funds are deposited into the paypoint’s bank account.

Settlement time

Settlement time depends on the funding schedule configured for each paypoint. Traditional Funding takes between two and three business days. Paypoints that qualify for Next Day Funding get funds deposited the next day.

Gross settlements and net settlements

Some paypoints are configured for gross settlements, meaning that the total batch amount processed are deposited into the paypoint’s bank account for that day. The processing fees that applied to those transactions, and all other transactions that month, are withdrawn from the paypoint bank account on the 1st day of the following month. This is monthly discounting and is the industry norm.

Some paypoints prefer a net-settlement configuration known as Daily Discount. This means that instead of receiving their full batch amount, paypoints receive the full amount minus their processing fees on a daily cadence, taking into account deposit timelines.

Voids and refunds

Transactions can be voided if they haven’t been settled yet. If funds have settled, you can initiate a refund, which gets the funds back to the payor.

Learn more in Void, Refund, or Reverse a Transaction.