What happens when you swipe your card?

Have you ever wondered why sometimes your credit/debit card transactions are not approved when paying a merchant? For this, let us first know how a card transaction takes place.

Suppose you are at a merchant location in USA and are trying to purchase some jewellery through your Indian-issued Chip-and-PIN card. The merchant will dip the card into the Point of Sale (POS) machine and if the machine is chip-and-PIN enabled, he keys in the transaction amount and presses the ‘sale’ button.

The POS machine dials into the acquirer bank that provides card acceptance services to the merchant. The acquirer then needs to obtain authorisation for this transaction and so pushes it to MasterCard or Visa that, among other things, act as the bridge between their various member banks. The card scheme will route the transaction to the issuer bank (that issues the card) to check if the transaction can be approved.

Having analysed and scored the transaction to parse illegal, suspicious and fraudulent transactions, the issuer then sends out an ‘approval’ response to the acquiring bank, through the card scheme and they both keep a log of the same. This guarantees a payment to the merchant when the transaction is settled. The approval response then hits the POS terminal and a ‘Transaction Success’ message is displayed. Although the transaction may have crossed continents and different countries, the process is usually over in less than half a minute.

So the next time a transaction fails, remember that it could be due to network overload or certain fraud-check parameters kick in to protect you may be responsible. However, ‘insufficient funds’ cause about a fourth of all transactions to be declined, following incorrect PIN entry, that causes about one-third of transaction failures.

The writer is general manager, fraud risk management, Worldline