Transaction Cycle

The transaction cycle refers to the steps that take place from the time a customer initiates a transaction to when the funds are deposited into the merchant’s account. The key stages include:

  • Transaction Initiation — The customer provides payment details, usually by swiping a card, inserting a chip, or entering information online.
  • Authorization — Verifying the transaction details with the issuing bank and ensuring that the customer has sufficient funds or credit available.
  • Authentication — The process of confirming the customer’s identity to prevent fraudulent transactions.
  • Clearing — The transaction details are sent from the acquiring bank to the issuing bank for processing.
  • Settlement — The funds are transferred from the issuing bank to the acquiring bank, and then deposited into the merchant’s account.

Each of these stages involves different entities, including the merchant, the payment processor, the acquiring bank, the card networks, and the issuing bank, all of which work together to ensure a smooth and secure transaction process.