How Does VISA Work?

VISA card transactions involve two critical processes: Authorization Flow and Capture and Settlement Flow. Here’s a concise explanation of each:

1. Authorization Flow (Real-Time Approval)

This process ensures the customer has sufficient funds or credit to make the purchase.

• Step 1: The customer swipes their VISA card at the merchant’s Point of Sale (POS) terminal to buy a product.

• Step 2: The POS terminal sends the transaction details to the merchant’s acquiring bank (Acquirer).

• Step 3: The Acquirer forwards the transaction to the VISA card network.

• Step 4:

• The card network routes the transaction to the Issuing Bank (e.g., Bank of America or Citi Bank).

• The Issuing Bank checks the customer’s account balance. If approved, it freezes the transaction amount temporarily and sends a response back through the same route.

• Step 5: The merchant receives real-time approval or rejection on the POS terminal.

2. Capture and Settlement Flow (End-of-Day Process)

This process ensures the merchant gets paid for approved transactions.

• Step 1: At the end of the day, the merchant “captures” the transactions on the POS terminal, sending a batch of transactions to the Acquirer.

• Step 2: The Acquirer forwards the batch file to the VISA network.

• Step 3: The VISA network processes the transactions and sends a clearing file to the Issuing Banks.

• Step 4: The Issuing Banks verify the transactions and transfer funds to the Acquirer.

• Step 5: The Acquirer transfers the money to the Merchant’s Bank, completing the payment.

This two-step system ensures secure and seamless transactions for both customers and merchants.