How do Card Payments Work?

October 24, 2023

Follow a step-by-step guide on how an online card payment works

Credit cards have global coverage and are one of the most popular ways to pay online. There are different types of cards and several steps in the process. Learn how it works, the parties involved, and the stages of a payment process behind the scenes.

Steps of the Payment Process

A payment process usually consists of 4 stages: Data verification, authentication, authorization, and capture.

1. Data Verification

At this stage, the card details are verified to be correct (for example, that the expiration date is not expired, or that the number obeys the luhn’s algorithm). In this step, it can not be yet warranted that the card is valid.

2. Authentication (optional)

In some instances, depending on the country’s regulations, bank requirements, or by choice of the merchant, the customer may be required to authenticate a purchase by entering a password. This may be a one-time authentication (via SMS, email, or a physical device that generates passwords) or another mechanism agreed with the card-issuing entity.

3. Authorization

At this stage, the bank (or the card issuer) checks whether there are sufficient funds for the account associated with the card. If so, retains that amount in the customer account to guarantee it to the merchant.

4. Capture

This is when money is moved from the issuing bank (or financial entity) to the merchant’s account.