How does credit card processing work?

Current credit card processing systems work on a "pull" basis, where the merchant's Point of Sale (POS) system initiates a request for an authorization from the issuing bank. This means that transactions can be authorized without cardholder approval. In some cases, merchants have been able to convince their customers to sign for transactions even though they were not required to do so.

Here are the steps of credit card processing using an Interac Flash contactless card:

1) Cardholder presents their Interac Flash enabled debit or credit card at a contactless reader, either on the merchant's terminal or another device, such as a mobile phone. The wireless symbol on the reader must be active to indicate the contactless card can be read. If it is not, check to see if you have another payment card enabled for contactless payments in your wallet or purse.

2) The transaction is immediately authorized by the debit network (Interac). This authorization ensures that funds are available in the cardholder's account up to the preset transaction and dollar limits.

3) The retailer is sent a notification message that indicates if the validation was successful or not. Funds are reserved for payment, but no funds are taken at this time. This authorization is reversed if the retailer does not receive an authorization response from their acquiring bank within 30 seconds of initiating the transaction. If there is no response, the cardholder may still be able to complete the transaction with another payment method.

4) The retailer then completes the sale and enters any additional tip or amount into their POS system for future reference.

5) Once the retailer is ready to process payment, he/she will select "Payment" on their POS device and enter the payment amount. If the cardholder has more than one contactless payment card, they will need to select which card to use for their purchase.

6) The retailer asks the customer to tap their contactless enabled Interac Flash enabled debit or credit card on the POS device for authorization. No signature is required at this point.

7) The transaction is immediately authorized by the debit network (Interac). Again, this authorization ensures that funds are available in the cardholder's account up to the preset transaction and dollar limits.

8) The retailer is sent a notification message that indicates if the validation was successful or not. Funds are reserved for payment, but no funds are taken at this time.

9) The final step is payment, and the retailer will collect any additional tip or amount for future reference. Retailers must collect the full transaction amount in order to avoid being charged back by their acquiring bank. If funds have not been reserved for payment via an authorization, the POS device may display a message informing the retailer that a chip or contactless transaction was attempted, but it failed. Retailers can then instruct their customers to use another payment method.

10) The merchant processing network will automatically collect settlement funds from the issuing bank for all successful transactions on a daily basis and distribute those funds back to both retailers and cardholders' financial institutions.