What is a transaction in payment?

Understanding Transactions in Payment Processing

In the realm of finance, a transaction constitutes the exchange of monetary value for goods or services. This seemingly straightforward process involves a intricate collaboration between multiple entities:

• Gateways: These serve as intermediaries, securely transmitting payment data between businesses and financial institutions.
• Acquirers: They facilitate the acceptance of payments on behalf of merchants, bridging the gap between gateways and issuing banks.
• Brands: These represent payment systems, such as Visa or Mastercard, that establish the infrastructure for the transaction.
• Issuing Banks: These institutions issue credit or debit cards to consumers and authorize transactions made with those cards.

The flow of information during a transaction is paramount to its successful completion. Here’s a simplified overview of the process:

• The customer initiates a purchase at a merchant’s store or website.
• The merchant sends the payment request to the payment gateway, along with relevant data (e.g., purchase amount, customer information).
• The gateway processes the request and forwards it to the acquirer.
• The acquirer then sends the transaction details to the issuing bank for authorization.
• The issuing bank verifies the availability of funds and approves or declines the transaction.
• The acquirer sends an authorization response back to the gateway.
• The gateway forwards the response to the merchant, indicating the status of the transaction (e.g., approved, declined).

If the transaction is approved:

• The merchant fulfills the order and sends the goods or provides the services.
• The issuing bank debits the customer’s account for the agreed-upon amount.
• The acquirer credits the merchant’s account with the funds.

If the transaction is declined:

• The merchant is notified of the decline and the customer is not charged.
• The issuing bank may provide a reason for the decline, such as insufficient funds or fraud detection.

By ensuring the smooth flow of information among these entities, transactions facilitate the seamless exchange of value between businesses and consumers. This complex ecosystem plays a vital role in supporting the global economy and enabling convenient and secure financial transactions.