When you swipe a credit or debit card at the store, you're done with the transaction instantly. So why can't your account statement keep up? If you've wondered why it takes so long for purchases to show up on your credit card statement or withdraw from a bank, it's because of a long, complicated process behind the scenes. Photo by Sean MacEntee.
As personal finance site Money Crashers explains, the part of the credit card transaction that you're involved in is only the first phase of a lengthy process that takes place between the merchant that you're shopping with and the card issuer. This step is called "Authorisation", and even that's not as simple as it looks:
The authorization process confirms that the buyer has more than enough funds on hand, or enough breathing room before hitting their credit limit, to complete a transaction. This reduces the risk of the merchant handing over goods for which the buyer can't actually pay. Authorization unfolds as follows:
- The customer provides card information to the merchant, whether by swiping or dipping in person, or providing digits online or over the phone.
- The merchant's payment processing terminal electronically sends the card number, transaction amount, and merchant ID number to the acquirer.
- The acquirer routes the information to the customer's issuing bank. This serves as a request to authorise the transaction for the specified amount.
- The issuing bank checks that the customer has adequate funds or credit. It also checks for red flags, such as near-simultaneous in-person transactions in distant locations, that may indicate the transaction is fraudulent.
- If sufficient funds or credit are present, and the transaction does not appear to be fraudulent, the issuer sends an authorization code through the network to the acquirer.
- The acquirer authorizes the transaction and informs the merchant.
- The merchant provides the requested product or service to the customer.
Authorization merely confirms that the customer has enough funds or credit to purchase the requested product or service. Money doesn't actually change hands during this process -- and won't until the funding step.
All of those steps happen in an instant, so you can walk out the door. Two more equally complicated phases called Batching and Clearing also occur. During the Batching phase, merchants store up all the information about credit card transactions they make during the day and deliver them to the card network (which is distinct from the card issuer). The network then requests payment from the card issuer (such as Visa). This is the stage where fees are deducted and so on.
Only after all of these phases are completed do you enter the Funding phase, where the transaction hits your statement. Debit cards are a little faster because they can skip some intermediary steps, but they can still take a while thanks to some special cases that Money Crashers describes. For example, the Authorisation phase can last longer for online purchases, which also need extra security steps. Check out the full post below for a lot more information on what goes into using your credit or debit cards.
How Credit Card Payment Processing Systems & Networks Really Work [Money Crashers]