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Frequently Asked QuestionsWhat happens during a typical Internet credit card transaction?

Typically, a transaction will take place in two phases, a charge and a settlement. In the first phase, a charge is made and money for the transaction is set aside from the cardholder's account. In the second phase, that money is transferred from the cardholder to the merchant. 
In general, the first transaction takes place as soon as the card is submitted, allowing the merchant to quickly secure the funds for the transaction. The second phase takes place later and is usually done in “batches” at the end of the business day. Settlements are done in batches because it is easier and more economical to void a transaction before funds are transferred than to credit a cardholder account after the fact. If you have ever checked your bank statement to find that there is a separate total for what you have and what is available, this means that a charge has been placed on your account that has not been settled yet. A more detailed outline of a transaction is below:
A customer provides their credit card information to a merchant. Credit card information can be submitted in a number of ways; their card is swiped though a terminal, they present their card information over the phone, or they type their card information on a website. Depending on how the customer submits their information to the merchant, they can send additional information to the merchant to verify the cardholder's identity for fraud prevention. 

A merchant submits the credit card information to either a processor for approval or to a payment gateway. If the merchant submits their information to a gateway, then the gateway will in turn submit the cardholder's information to a processor for approval.

The processor runs a check on the card and will respond with an approval or rejection for the transaction to the merchant or the gateway (who will pass that information back to the merchant). The amount of funds requested will be held on the cardholder's account but will not be transferred out yet.
The merchant notifies the customer of the success or failure of the transaction. If the transaction is successful, then the merchant will ship products/provide services to the customer.

At a later time, usually at the end of the day, the merchant will settle the transactions it has performed that day.  By communicating again with the processor, the funds that were charged earlier are then transferred for the cardholder's accounts to the merchant's account.

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