Two Stages of Transaction Processing

 

Stage #1) Authorization

• Card details and purchase amount must first be verified and approved by the issuing bank. Authorization is the process by which the issuing bank approves or declines a card transaction. This takes place within a matter of seconds at the time of purchase.
• The issuing bank checks the validity of the credit or debit card used by the customer. This is done by utilizing various fraud prevention tools, including Address Verification Service (AVS) and Card Security Codes (CVV2, CVC 2 and CID).
• The response is received by the merchant.

Stage #2) Clearing and Settlement

• Clearing is a process through which an issuing bank exchanges transaction information with a payment processor.
• Settlement is a process through which an issuing bank exchanges funds with a payment processor to complete a cleared transaction.
• Clearing and settlement occur simultaneously.

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