Step 1: A customer is making a purchase at an online shop.

A customer is making a purchase at an online shop.  They are prompted to enter their credit card details on a secure page.  In some cases the Online Shop may not have a secure server so this page will be hosted by a Payment Gateway.  The customer enters their credit card details and submits the form.  The information is validated before being packaged into a Transaction Message.  If the validation fails the customer will be prompted to correct it by the Online Shop. The Online Shop is often referred to as the merchant in online payments terminology.

Step 2: The online shop sends the transaction message to the payment gateway.

The Online Shop sends the transaction message to the Payment Gateway.  The Payment Gateway performs validation on the transaction to confirm the required information is present and is in the correct format.  The Payment Gateway may carry out checks to detect fraudulent transactions.  The transaction details are recorded by the Payment Gateway.  The Transaction Message is converted into the message format required by the bank.

Step 3: The payment gateway sends the transaction message to the bank.

The Payment Gateway sends the Transaction Message to the bank.  In online payments terminology this bank is known as the Acquiring Bank.  They carry out various checks on the Transaction Message to ensure it is valid and that the transaction is not fraudulent. The Acquiring Bank determines who the Card Issuer is. The Transaction Message is converted into the message format required by the Card Issuer.

Step 4: The acquiring bank sends the transaction to the card issuer.

The Acquiring Bank sends the transaction to the Card Issuer. The Card Issuer validates the information and confirms there is sufficient funds available. The Card Issuer decides to approve or decline the transaction. If the transaction is approved they place a hold on the credit card funds for the amount requested.  If the transaction is declined they provide a reason for declining the transaction.  A Response Message is created to store the result of the transaction.

Step 5: The card issuer sends the response message to the acquiring bank.

The Card Issuer sends this Response Message to the Acquiring Bank. The Acquiring Bank validates the information contained within the response message.  They update their systems with the transaction result.

Step 6: The acquiring bank sends the response message to the payment gateway

The Acquiring Bank sends the response message to the Payment Gateway.  The Payment Gateway validates the response information and then updates their system with the result. In the case of a declined transaction the Payment Gateway may translate the Card Issuer decline message into a more readable format.  The Response Message will be converted into the Payment Gateway message format.

Step 7: The payment gateway sends the response message to the online shop.

The Payment Gateway sends the response message to the Online Shop. The Online Shop verifies that the response message came from the Payment Gateway. They validate the contents of the response to confirm the information is correct. They save the result of the transaction in their system.  Based on the transaction result the Online Shop determines which page to present to the user.

Step 8: The online shop displays the result of the customers online payment transaction.

The Online Shop displays the result of the transaction to the customer.  This is the final step in the authorisation process.  This process typically takes less than 5 seconds end-to-end to complete.  If the transaction was successful then the transaction amount is reserved on the customers credit card. The Settlement Process is what causes the funds to be debited from the customers card and deposited in the merchants bank account. This process takes place behind the scenes usually on a nightly basis.