How Do Card Payments Work?

Every card payment, whether it is a tap at a till or a checkout on a website, follows the same basic journey. The transaction travels from the merchant to an acquiring bank, across a card network such as Visa or Mastercard, to the bank that issued the card, and back again with an approve or decline answer. This round trip usually takes a few seconds.

In South Africa, the vast majority of cards are Visa or Mastercard cards issued by banks such as Absa, FNB, Nedbank, Standard Bank, Capitec, TymeBank and Discovery Bank. Understanding the parties involved makes it much easier to follow topics like authorisation, declines, refunds and chargebacks.

Who Is Involved in a Card Payment?

Four main parties, plus the network that connects them, take part in every card transaction:

• Cardholder – the customer paying with a debit, credit or prepaid card.
• Merchant – the business accepting the card payment, in person or online.
• Acquirer – the bank or payment institution that processes card transactions on behalf of the merchant and settles the money to the merchant.
• Card network – Visa or Mastercard (and others), which routes messages between the acquirer and the issuer and sets the scheme rules.
• Issuer – the cardholder's bank, which approves or declines the transaction and debits the cardholder's account.

A payment provider such as Kwik sits between the merchant and the acquirer, handling the checkout, card machine or payment link, securing the card details and passing the transaction into the card system.

What Happens Step by Step?

A typical card payment follows this sequence:

1. Initiation – the cardholder taps, inserts or swipes a card at a terminal, or enters card details online.
2. Authentication – where required, the cardholder is verified with a PIN at the terminal or 3D Secure online.
3. Authorisation request – the transaction details travel from the merchant through the acquirer and card network to the issuer.
4. Issuer decision – the issuer checks that the card is valid, funds or credit are available and the transaction does not look fraudulent, then returns an approval or a decline.
5. Response – the answer travels back through the network to the merchant within seconds.
6. Capture and clearing – approved transactions are submitted for clearing, where the schemes exchange the transaction records between banks.
7. Settlement – the money moves from the issuer to the acquirer, and the acquirer pays the merchant, less any agreed fees.

Authorisation and settlement are separate steps. An approval reserves the funds on the cardholder's account, but the merchant is only paid once the transaction has been captured, cleared and settled. See Authorisation, Capture and Pre-Authorisation for detail.

Why Do Some Payments Fail?

The issuer can decline a transaction for many reasons, including insufficient funds, an expired card, incorrect details or suspected fraud. Some declines are temporary and can be retried, while others are final. Why Do Card Payments Get Declined? explains the common decline categories.

How Are Card Payments Kept Secure?

Several layers of security protect a card payment:

• EMV chip and contactless technology makes physical cards very difficult to clone.
• PIN and 3D Secure verify that the person paying is the genuine cardholder.
• Tokenisation and encryption protect card numbers in transit and in storage.
• PCI DSS sets the security standard that everyone handling card data must meet.

Read more in What Is 3D Secure? and Card Tokenisation and Network Tokens.

Related Topics

• Card payments hub
• What Happens During an Online Card Payment?
• Gateways, Processors, Switches and Acquirers
• How Payments Work