Complex Made Simple

It’s more than just a swipe. Find out how your credit card works

According to a report by Network International, domestic card spends in UAE have increased by 12 per cent during the first quarter of 2016 compared to the same period last year. Similarly, visitors on are also increasingly looking for credit cards. When comparing Q2 2016 with the same period last year, credit card visits increased by 40 per cent on the site. Demand for credit cards isn’t surprising since they are a quick and easy way to pay for things. But, while most of us have used a credit card at some point, do we really know how it works?


There are series of steps that take place from the moment you swipe your card until your payment gets processed and the transaction is completed. Not only are these invisible to the naked eye but also take place in a matter of seconds. Along with the cardholder and the merchant, there are a number of other key players involved as the transaction goes through. These are the merchant’s bank (acquiring bank), cardholder’s bank (issuing bank) and the card network (Visa, MasterCard, Amex).


A better understanding of all parties involved can give you an in-depth look at how a credit card transaction gets completed.


Merchant – The merchant is the physical store or e-commerce website where you make the purchase. A merchant would have an account with an acquiring bank, through which all credit card payment transactions are settled.


Acquiring bank – This is the merchant’s bank that provides him with the POS machine or e-commerce payment software to carry out the payment.


Issuing bank – This is the bank that issues the credit card to the cardholder. The issuing banks are required to pay the acquiring bank the purchase amount.


Card network – These companies act as a gateway between the merchant and the cardholder and process the credit card payments. Visa, MasterCard and American Express are the primary card networks globally. They usually charge a certain percentage of the transaction value as their fees.


What happens when I swipe my card?

So, you went grocery shopping at the local neighbourhood store and presented your card to make the payment. What happens next? The merchant swipes your card using the POS machine and you enter your card PIN, after which the transaction data is submitted to the acquiring bank. The acquiring bank forwards the payment request to the card network for validation. The card network – Visa or MasterCard, further sends a request for approval to the issuing bank.


Based on your card’s validity, credit limit and other such criteria, the issuing bank will approve or decline the transaction and send this response to the card network who will forward this response back to the acquiring bank.


If the transaction is approved, the acquiring bank will complete the payment and the merchant will be notified. The merchant gets two copies of the receipt, one for himself and one for you. The sale is approved and you walk out of the store with your groceries.


At the end of the day, the merchant processes all of the sale transactions and sends them to the acquiring bank to receive payment. The merchant’s acquiring bank forwards this transaction data to the card network.


Since there are a number of issuing banks involved, the card network routes the transactions to these specific banks to settle the payment.


The transaction will then reflect on your credit card statement where you will be able to pay your bill as and when it’s due.


For online purchases, the POS machine is replaced by an online payment gateway that processes the e-commerce transaction. You’re required to enter your credit card details – card number, card expiry date and CVV number to proceed with your payment. To ensure cyber security, banks in UAE also use the ‘3D Secure’ feature which generates an authentication code or one-time password (OTP) which is sent to your mobile number or email address. The transaction will be successfully processed if your card details and OTP is accurate.