In the payment processing industry, a transaction is an event that happens when a customer makes a payment for goods or services. A transaction usually involves the following steps:
- Authorization — The process of verifying that the payer has sufficient funds available on their card or account to cover the transaction
- Capture — The process of submitting the authorized transaction for settlement.
- Settlement — Funds are transferred from the issuing bank (customer’s bank) to the acquiring bank (merchant’s bank).
A transaction may also involve additional steps such as authentication, where the payer’s identity is verified, and fraud screening, where the transaction is checked for signs of fraudulent activity.
Each step in the transaction process involves communication between multiple parties, including the merchant, the payment gateway or processor, the issuing bank, and the card networks.