In the simplest of terms, a transaction flow is the journey a payment takes from start to approval to settlement. An electronic transaction flow is the journey an electronic purchase follows from a customer to a merchant’s bank account. Any time a person buys something using a credit card, it follows a stream or transaction flow, passing through many players before the payment is settled. Understanding this process may help merchants get a clearer perspective and the importance of batch deposits, the risks of chargebacks, and the length of time it takes for funds from transactions to become available into their account.
Despite the common perception that financial transactions like credit card payments take a significant amount of time to be approved, modern technology and advancements in financial systems have made it possible for even complex transactions to be approved within mere seconds. This is made possible through processes such as real-time payment systems and artificial intelligence (AI) algorithms, which analyze millions of data points to quickly assess the risk and legitimacy of each transaction. Additionally, the use of electronic signatures and paperless documentation has further expedited the approval process while reducing costs associated with traditional paper-based methods. While this speed may seem surprising, it reflects the power of modern technology and its ability to enhance efficiency in various areas of our lives, including finance.
When a credit or debit card is swiped, there are several parties involved in the transaction. The first party is the customer or cardholder that makes the purchase electronically or on site. The second partaker is of course the merchant who accepts the payment. Once the card is swiped, the merchant’s bank or payment processing company and the customer´s bank (or issuing bank) participate in the process. Another key player are card associations such as Visa or MasterCard Once who set policies and connect issuing and merchant banks or payment processors. Throughout this process, security measures are put into place by all parties involved to protect against fraud or unauthorized transactions.
Payment Transaction Flow
A typical payment transaction flow includes 8 steps. Following, we briefly explain what these steps are:
Step 1: A customer/cardholder chooses an item and then presents a credit card to the merchant to purchase it.
Step 2: After the card is swiped, the merchant’s acquiring bank requests an electronic authorization from the cardholder’s bank account, so it can be verified that the funds are available.
Step 3: The electronic authorization, then, passes through the payment processing networks.
Step 4: Based on fund availability, the credit card-issuing bank will either approve or decline the transaction. The information, including the approval code for the transaction, is based back to the networks, the acquiring bank, and then, finally delivers it to the merchant’s point-of-sale machine or card reader.
Step 5: The credit card issuing bank transfers the money to the acquiring bank as a reimbursement for the item the customer just bought.
Step 6: The acquiring bank deposits the funds into the merchant’s account. A fee may be charged for this transaction.
Step 7: The credit card-issuing bank bills the customer for the purchase made.
Step 8: The customer pays his/her credit card bill for the purchase that was made.
The funds flow like this for every credit card transaction around the world.
Transaction Flow Example
There is no better way to understand something than through an example. We will therefore show you a real example that can help explain the transaction flow cycle. Jane is a typical customer who walks into a retail store and buys $75 worth of clothing. She brings her goods to the counter and then, the merchant’s clerk instructs her to swipe or insert her payment card, using the terminal or Point-of-Sales (POS) terminal as it is called. Once her credit card is entered, her card information is captured and a request for authorization is transmitted to Jane’s bank to verify that she has enough funds to cover the $75 cost of the clothing. If the funds are available, the merchant’s terminal gets a response, noting the purchase is approved or declined. If the transaction is declined, a response code, which indicates the reason for the denial, is sent. If it is approved, $75 is authorized to be deducted from Jane’s account. Then, the acquirer deposits the funds minus its agreed-upon fee percentage to the merchant’s account.
In a way, batch and real-time processing also are part of the transaction cycle. The biggest difference between batch and real-time is how long it takes for transactions to be made available to the receiver or merchant. Batch processing is a cost-effective method of high-volume transaction processing, however, there is always a time lag between the point it occurs and when it actually shows up in the merchant’s account. Therefore, though a transaction has already been approved, it may take a day or two to show up in a merchant’s account.
Real-time systems process transactions individually at the moment or almost close to the moment an event occurs. Since there is no wait to batch transactions, there is no delay between the transaction occurrence and the recording of it into the merchant’s account. The funds show up in a merchant’s account within seconds.
Payment transaction flow refers to the journey a payment takes from the start to approval and settlement. It involves multiple parties, including the customer, the merchant, an acquiring bank, payment processing networks operated by credit card companies, and the card issuers such as Visa or MasterCard. The transaction flow includes 8 steps, and it helps businesses understand important aspects such as batch deposits, risks of chargebacks, and the time it takes for funds to become available in an account.
Transaction flow is the process through which a payment passes from the time a customer initiates it until it is settled in the merchant’s account. This flow involves multiple players such as the customer, the merchant, acquiring banks, payment processing networks, and card issuers. By understanding transaction flow, businesses can gain insights into aspects like batch deposits, chargeback risks, and the time it takes for funds to become available.
Transactional flow is another term for transaction flow, which refers to the journey a payment takes from initiation to approval and settlement. This process involves several parties, including the customer, merchant, acquiring bank, payment processing networks, and card issuers. Businesses that understand transactional flow can better manage aspects such as batch deposits, chargeback risks, and the time required for funds to be available in their accounts.
Bank transaction process flow is the sequence of steps that a payment follows when it is initiated by a customer and passed through various players, including the merchant, acquiring bank, payment processing networks, and card issuers, before it reaches settlement. By understanding the bank transaction process flow, businesses can gain clarity on issues like batch deposits, chargeback risks, and the time it takes for funds to become available in their accounts.
Flow of transaction is the journey a payment takes from initiation to approval and settlement, involving multiple parties such as the customer, the merchant, the acquiring bank, payment processing networks, and card issuers. Understanding the flow of transactions helps businesses manage issues such as batch deposits, chargeback risks, and the time it takes for funds to become available in their accounts.
Transaction flows refer to the processes and steps that payments take from initiation to approval and settlement. This involves multiple parties, including customers, merchants.
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