The success of a modern payment transaction often hinges on a fleeting moment. For their part, payment service providers navigate a delicate balancing act, serving the businesses that are their direct customers, while also ensuring the satisfaction of those companies’ customers.
Here's a closer look at what needs to happen behind the scenes so that transactions can be processed in the blink of an eye.
Some people reading this may remember the early credit card machines that would swipe an imprint of a card onto paper. This manual process of placing a card and paper slip on the machine, followed by a mechanical “swipe”, typically took a minimum of 30 seconds (if the paper didn’t crumple on the first attempt). Those days are long gone.
Today, when you tap your card, phone or watch at a point-of-sale, you expect the transaction to be instant, seamless and invisible. It needs to work. Safely and fast. Anything slower than half a second feels like an eternity. A decade ago, three or four seconds was an acceptable wait. Today? 130 milliseconds is the benchmark.
This expectation is not just about convenience – it is about trust, reliability and the reputation of every business involved. If the process fails, the merchant suffers, the customer is frustrated, and the payment provider’s reputation is on the line. Talk about high stakes.
Nothing is stagnant in this industry.
What actually happens in those 130 milliseconds? It is a story of complexity, security and a relentless focus on customer experience. Those 130 milliseconds encompass the anatomy of a payment.
The simplest analogy in layman’s terms is to imagine an onion. Each layer, from the outermost to the core, is critical in ensuring the merchant’s customer walks away happy, keeping the merchant happy.
What are the layers that make up the anatomy of a payment? Let’s peel back the onion, layer by layer to find out.
Layer 1: Legitimising the card and user
This process starts the instant the customer interacts with the payment terminal. The terminal interacts with the chip on the card, and a rapid-fire exchange of information begins. The card is checked for legitimacy:
- Is the card expired?
- Is it on a blacklist of fraudulent cards, or a whitelist for special handling?
- Was the correct PIN entered?
- For tap payments, is the amount within the issuer’s limits for PIN-less transactions? If not, cycle to entering the PIN.
These initial checks are the first line of defence against fraud and error. It ensures that only valid cards and users proceed through the payment. Designed to be invisible to the customer, this builds the foundation of trust in the system.
Layer 2: Encryption and security
Once validated, transaction data is encrypted according to international standards. Encryption is important because it protects sensitive information as it travels between the terminal, the payment switch and the banks. This encryption is supported by secure hardware and data centres, and links are used to prevent interception of data or tampering.
Layer 3: Authorisation and fraud checks
The encrypted transaction request is sent from the terminal to the payment switch. The issuing bank then checks for sufficient funds in the account and runs fraud detection, such as velocity checks, geographic checks and behavioural analysis.
If you are known to swipe your card at the local grocery store and suddenly four payments go off in Houston, Texas, that raises a red flag. If the transaction is approved, a response is sent back through the payment switch to the terminal; if the transaction is not approved, the transaction is declined with a specific code that is sent to the terminal.
Layer 4: Clearing and settlement
Once authorisation has occurred, a second set of encrypted messages is sent to the acquiring bank – this is the retailer’s bank – to process the transaction. The acquiring bank confirms the transaction, and the point-of-sale system then finalises the sale. Typically, overnight, the issuing and acquiring banks settle the funds, which ensures the merchant is paid.
Layer 5: Compliance and certification
In many ways, this is the core. All the previous steps occur within a payment card industry data security standard (PCI DSS)-certified environment. This is a global security standard.
Certification with this standard is not a once-off process. It requires annual, intensive audits and covers people, process and technology. Additional certifications, such as those for payment devices and ongoing validation, are also required. It is this continuous compliance that underpins trust and allows the payment ecosystem to function securely.
What it all adds up to: Customer experience and speed
Ultimately, when the layers of the onion, the anatomy of a payment, all go according to plan and as they should, the merchant’s customer is happy, the merchant is happy, and the payment service provider builds on its reputation of delivering world-class quality.
If the process fails, the customer is left frustrated, the merchant unhappy and the payment service provider suffers reputational harm.
That’s precisely the differentiator among payment providers: the ability to deliver both world-class security and a seamless consumer experience.
Nothing is stagnant in this industry. Payments evolve and new devices, payment methods and channels enter the ecosystem, and yet despite this, those 130 milliseconds of complexity are non-negotiable to ensure a good customer experience anchored by safety and security.
Share