Author: Sean P. Egen
July 24, 2018
You swipe the magnetic stripe—or hopefully by now insert the EMV chip—of your card into the credit card terminal on the counter, wait a few seconds, politely decline a printed receipt from the friendly barista working the register, and walk out the door with your latte in hand. You don’t give what just took place a second thought until you receive your credit card statement showing a $6 charge for that caffeinated morning pick-me-up almost a month later.
You know enough about credit cards to understand the bank that issued your card essentially loaned you the money for that coffee and you’re obliged to eventually pay them back. But, if you’re like most people, it’s still a mystery as to what actually happens from the time you stick that magical piece of plastic into the card-reader to the point where you make a payment on that overpriced shot of espresso and steamed milk you enjoyed weeks earlier.
Well, we’re about to explain that mysterious process in easy-to-understand broad strokes, but first let’s run down the list of the players involved. As the barkers who hawked glossy printed programs at sporting events used to say—before smartphones made printed rosters mostly irrelevant—“You can’t tell the players without a program!”
Let’s say you use a Visa card issued by Credit One Bank (the Issuing Bank) to buy your coffee. You insert—“swipe” is still the popular nomenclature, but it’s “so a few years ago”—your Visa into the credit card terminal at your favorite coffee shop, which has signed an agreement with First National MegaBank (FNMB, the Acquiring Bank), to process customer purchases made with credit cards.
That terminal on the counter sends the credit card’s information to FNMB, and they promptly identify which network the credit card uses (Visa, Mastercard, etc.) based on the first number of your card. Once the card type is identified, its information is routed to the appropriate Network, in this case, because the card’s number starts with a “4,” to Visa.
Visa identifies the Issuing Bank based on the next few numbers of the credit card. Visa then sends the card number, the name of the merchant, and the transaction amount to the Issuing Bank, in this case, Credit One Bank. Now it’s Credit One Bank’s move to decide whether to approve or decline your coffee purchase.
If Credit One Bank believes the requested purchase is legit—as in it’s actually you and not a case of fraud—and the charge isn’t for more money than you have available credit and the account is still open and in good standing, they’ll tell Visa to let FNMB know the transaction is approved and to go ahead and process it.
FNMB then tells the terminal at the coffee shop that the transaction got a thumbs-up from Credit One Bank, and you get your fancy coffee and, if you so desire, a printed receipt. You may have to sign for the purchase if it’s over a certain amount, although most all of the major Networks are doing away with signatures altogether.
The above process all takes place in a matter of seconds, so you don’t need to worry about your coffee getting cold while you wait for everyone to do their part in the transaction. As for who gets paid when and in what order, it basically boils down to:
So there you have it. That’s essentially what happens when you use your credit card to achieve instant gratification by getting that thing you need or want within seconds of “swiping” your card. There are other bells, whistles, and specifics in the equation—including security safeguards like encryption—but now you at least get the gist of the overall process.
At least enough to ponder what actually took place the next time you have a few minutes to kill waiting for that extra-hot, extra-foamy mocha latte you just charged to be made.
About the author:Sean P. Egen
After realizing he couldn’t pay back his outrageous film school student loans with rejection notices from Hollywood studios, Sean focused his screenwriting skills on scripting corporate videos. Videos led to marketing communications, which led to articles and, before he knew it, Sean was making a living as a writer. He continues to do so today by leveraging his expertise in credit, financial planning, wealth-building, and living your best life for Credit One Bank.
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