Lifecycle of a Card Transaction

It is true that the digital era has now introduced several payment methods for customers to buy goods and services. But even in 2025, card payments continue to hold the lion’s share in terms of online transactions. If you are someone selling some goods or services without having the feasibility of accepting card payments at the counter, you will lose out on certain conversions.

Have you been accepting card payments at your store for a while now? If yes, are you completely aware of what the lifecycle of a card transaction is? Well, it is an important attribute for you to be aware of, which will eventually help you optimize payment acceptance for better business performance and cost control.

Read along this article till the end to get a clear insight into what the lifecycle of a card transaction is.

What is a Card Payment Lifecycle?

For you to know, the card transaction lifecycle implies the participation of major players involved in the entire payment ecosystem. All the steps involved in processing a card transaction, starting with the initiation of authorization request to the settlement of payment, represent the lifecycle of a card transaction.

The key players who play a role in the lifecycle of a card transaction are:

●???? Issuing bank

●???? Customer or cardholder

●???? Merchant

●???? The payment processor or gateway providers

●???? Card brands

●???? Regulators or government

Detailed Insight into the Lifecycle of a Card Transaction

Welcoming customers and assisting them to find their desirable goods or services is the first job as a provider in the industry. Once that part is settled, the customer then decides on a method to pay for the goods or services you offered them. The said lifecycle is initiated when the customer decides to purchase the goods or services using a debit/credit card.

The card payment lifecycle then goes through various stages which include:

1. Authorization

An authorization request will be initiated once the customer produces his/her card to the merchant for making the purchase. The authorization request will then be sent to the merchant's payment processor.

Right from that step, the payment processor will then submit a request to the issuing bank through a dedicated card brand. The issuing bank will then either approve or decline the transaction based on various reasons.

2. Response

Irrespective of the issuing bank’s approval or denial, the response will return back to the payment processor and then to the merchant. The message will then be shown to the customer to update them on whether their purchase was successful or not.

In case the payment is unsuccessful, merchants often ask customers to try different cards or other acceptable methods.

3. Capture Request

Upon a valid authorization, the merchant will also be liable for submitting the request to capture the said funds through the authorization path. This way, the transaction amount will be debited from the customer’s linked account and will be credited to the merchant’s account through the processor.

4. Settlement

The payment processor levies some processing charges or interchange fees that are for merchants to pay for using the card payment services at their stores.

Common Reasons that Lead to Failure of Card Transactions

Right from the authorization step, there are certain reasons why the issuing bank might reject the transaction request. In most cases, the reason is clearly presented in the response message. But being a merchant, if you want to be more clear with your customers about potential transaction failures, you must be aware of the reasons behind them:

1. Incorrect PIN Entered

Customers get to create a secret PIN for every payment card they own. For most of the transactions, this PIN is a mandatory safety net for customers to prevent unauthorized transactions. The most common reason for transaction failures is when customers mistype their PIN while processing the card transactions.

Re-entering the correct details can fix the issue, but you must guide your customers to double-check the information before clicking on the Checkout button again. This is because multiple failed attempts can block the card and prevent it from being used.

2. Insufficient Funds

If the bank account linked to the card has funds less than the transaction amount, the payment will be denied by the issuing bank. You can ask your customers to use different cards or payment methods to complete the transaction.

3. Card Expired

Considering the busy lifestyle of most people around the world, it becomes difficult to remember the expiry dates on payment cards. Therefore, one of the evident reasons for the failure of transactions is the use of expired payment cards. Ask the customers to contact their bank and get a new card with an extended expiry date.

4. Daily Limit Reached

Every card-issuing brand or bank imposes certain spending limits for people in a day. If your customer has exceeded that limit, the transaction won’t go through your payment processor or POS device.

What are Chargebacks?

One of the most crucial aspects of the card payment lifecycle is chargeback. In order to continue accepting card payments, you ought to keep yourself updated with the chargeback rules.

Every time a customer raises a dispute on a certain credit card or debit card transaction, the issuer will determine if the query is eligible for a refund. This process is referred to as chargebacks! The process of chargebacks involves a lot of time and cost, which is a booming concern for both issuers as well as merchants.

As a merchant, chargebacks will lead to loss of revenue. Beyond that, you will also have to pay a certain chargeback fee to the processor. Even if the issuer denies the chargeback request of the customer, you will still be liable to pay the chargeback fee.

Process of Chargebacks

Here’s the detailed process of how chargebacks are initiated:

●???? The customer will be raising a dispute for a payment card transaction.

●???? Card issuer will then determine if the dispute raised is valid.

●???? Customer will then receive a provisional credit of the transaction amount if the dispute seems valid.

●???? The card network will collect all the information associated with the dispute.

●???? The issuing bank will notify the merchant about the dispute and the cause behind it.

●???? Merchants can also decide to raise a dispute on the chargeback approved. If that happens, compelling pieces of evidence will be collected to take the request further.

●???? The bank will then review the evidence and make a recommendation on whether to approve or reject the chargeback.

●???? The cardholder will then be notified of the final decision.

Parting Words

Processing a card transaction doesn’t seem very complex as it is a quick one-minute task. But, knowing the technicalities is what can help you make a difference in optimizing your revenue generation, transaction costs, and more.

Consumers find this process an instantaneous mode of payment, but as a merchant, it is important to understand the underlying mechanisms. This way, you will be able to attain more convenience and establish security towards accepting card payments.