Complete Transaction Example
Let's trace a $100 credit card purchase from start to finish, following the money and fees through all three phases of the transaction lifecycle.
Timeline: $100 Purchase at Coffee Shop
┌─────────────────────────────────────────────────────────────────────────────┐
│ COMPLETE $100 TRANSACTION LIFECYCLE │
└─────────────────────────────────────────────────────────────────────────────┘
═══════════════════════════════════════════════════════════════════════════════
PHASE 1: AUTHORIZATION (Tuesday 9:15 AM - 2 seconds)
═══════════════════════════════════════════════════════════════════════════════
Customer taps Visa card for $100 coffee order
Customer Coffee Shop Processor Visa Chase
│ │ │ │ │
│ Tap Card │ │ │ │
│─────────────────▶│ │ │ │
│ │ Auth Request │ │ │
│ │ $100.00 │ │ │
│ │─────────────────▶│ │ │
│ │ │──────────────▶│ │
│ │ │ │──────────────▶│
│ │ │ │ │
│ │ │ │ ✓ Card valid │
│ │ │ │ ✓ $2,500 │
│ │ │ │ available │
│ │ │ │ ✓ No fraud │
│ │ │ │ │
│ │ │ │◀──────────────│
│ │ │◀──────────────│ APPROVED │
│ │◀─────────────────│ │ Auth: 847291 │
│ "Approved" │ │ │ │
│◀─────────────────│ │ │ │
│ │ │ │ │
RESULT:
• $100 hold placed on customer's card
• Customer's available credit: $2,500 → $2,400
• NO MONEY HAS MOVED YET
• Authorization code 847291 recorded
═══════════════════════════════════════════════════════════════════════════════
PHASE 2: CAPTURE & CLEARING (Tuesday 11:00 PM - overnight)
═══════════════════════════════════════════════════════════════════════════════
Coffee shop closes batch at end of day (includes our $100 transaction)
Coffee Shop Processor Visa Chase
│ │ │ │
│ BATCH CLOSE │ │ │
│ (157 txns) │ │ │
│ ($8,432 total) │ │ │
│─────────────────▶│ │ │
│ │ │ │
│ │ Submit to Visa │ │
│ │ (93 Visa txns) │ │
│ │──────────────────▶│ │
│ │ │ │
│ │ │ Clear to Chase │
│ │ │ (incl. $100) │
│ │ │─────────────────▶│
│ │ │ │
│ │ │ │ Convert
│ │ │ │ "pending"
│ │ │ │ to
│ │ │ │ "posted"
│ │ │ │
RESULT:
• Customer's statement: "Pending" → "Posted $100.00"
• Interchange calculated: $1.80 (1.80% for rewards card)
• Settlement positions calculated
• Fees allocated to each party
═══════════════════════════════════════════════════════════════════════════════
PHASE 3: FUNDING (Wednesday - money moves)
═══════════════════════════════════════════════════════════════════════════════
Chase (Issuer) Visa Network Acquirer Coffee Shop
│ │ │ │
│ Net Settlement │ │ │
│ $98.05 owed │ │ │
│────────────────────▶│ │ │
│ │ │ │
│ │ $98.05 │ │
│ │──────────────────▶│ │
│ │ │ │
│ │ │ $97.50 │
│ │ │──────────────────▶│
│ │ │ │
═══════════════════════════════════════════════════════════════════════════════
FEE BREAKDOWN: Where the $2.50 Went
═══════════════════════════════════════════════════════════════════════════════
┌────────────────────────────────────────────────────────────────────────────┐
│ │
│ Customer Pays: $100.00 │
│ │
│ ┌──────────────────────── ─────────────────────────────────────────────┐ │
│ │ CHASE (Issuer) keeps: │ │
│ │ │ │
│ │ Interchange Fee: $1.80 (1.80%) │ │
│ │ ────────────────────────────── │ │
│ │ • Compensates for credit risk │ │
│ │ • Funds rewards program │ │
│ │ • Covers fraud losses │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │ │
│ ▼ │
│ $98.20 │
│ │ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ VISA (Network) keeps: │ │
│ │ │ │
│ │ Assessment Fee: $0.15 (0.15%) │ │
│ │ ────────────────────────────── │ │
│ │ • Network infrastructure │ │
│ │ • Brand marketing │ │
│ │ • Rules enforcement │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │ │
│ ▼ │
│ $98.05 │
│ │ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ ACQUIRER/PROCESSOR keeps: │ │
│ │ │ │
│ │ Markup: $0.45 (0.45%) │ │
│ │ Per-txn Fee: $0.10 │ │
│ │ ───────────────────────────── │ │
│ │ Total: $0.55 │ │
│ │ • Processing infrastructure │ │
│ │ • Merchant support │ │
│ │ • Risk monitoring │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │ │
│ ▼ │
│ ┌─────────────────────────────────────────────────────────────────────┐ │
│ │ COFFEE SHOP receives: $97.50 │ │
│ │ │ │
│ │ Net deposit = $100 - $2.50 fees │ │
│ │ │ │
│ └─────────────────────────────────────────────────────────────────────┘ │
│ │
│ SUMMARY: │
│ ───────────────────────────────────────────────────────────────────── │
│ │ Recipient │ Amount │ Percentage │ │
│ ├────────────────────────┼───────────┼────────────┤ │
│ │ Chase (Issuer) │ $1.80 │ 1.80% │ │
│ │ Visa (Network) │ $0.15 │ 0.15% │ │
│ │ Acquirer/Processor │ $0.55 │ 0.55% │ │
│ │ Coffee Shop (Merchant) │ $97.50 │ 97.50% │ │
│ │ ─────────────────────────────────────────────── │ │
│ │ TOTAL │ $100.00 │ 100% │ │
│ │
└────────────────────────────────────────────────────────────────────────────┘
Detailed Fee Breakdown by Party
Chase (Issuing Bank) - $1.80
What they receive: Interchange fee of 1.80%
Why they receive it:
- Credit risk: Extending credit to cardholder
- Fraud liability: Covering fraudulent transactions
- Rewards programs: Funding cash back, points, miles
- Customer service: Supporting cardholders
- Float cost: Paying merchant before collecting from cardholder
Fee determinants:
- Card type (rewards card = higher)
- Transaction type (CNP vs CP)
- Merchant category (MCC)
- Transaction size
Interchange Variation
A basic debit card might only charge 0.50% ($0.50), while a premium rewards card could charge 2.40% ($2.40) on the same $100 transaction. The issuer keeps this difference.
Visa (Card Network) - $0.15
What they receive: Network assessment fee of 0.15%
Why they receive it:
- Network infrastructure: Operating global payment network
- Security systems: Fraud detection, tokenization, 3D Secure
- Brand marketing: "Everywhere you want to be"
- Rules & compliance: Developing and enforcing network rules
- Innovation: Developing new payment technologies
Fee structure (2024-2025 rates):
- Acquirer processing fee: 0.14% (this transaction)
- International service assessment: 0.00% (domestic transaction)
- Kilobyte access fee: $0.00195 per transaction
- Flat fee per transaction: Minimal
Acquirer/Processor - $0.55
What they receive: Markup + per-transaction fee
Fee breakdown:
- Percentage markup: 0.45% = $0.45
- Per-transaction fee: $0.10
- Total: $0.55
Why they receive it:
- Payment processing: Routing transactions to networks
- POS hardware/software: Terminal support and updates
- Risk monitoring: Fraud detection at merchant level
- Settlement: Managing merchant funding
- Customer support: Supporting merchant inquiries
- Compliance: PCI-DSS, AML, regulatory reporting
What this covers:
- Infrastructure and data centers
- Transaction routing and switching
- Integration with merchant systems
- Risk management and underwriting
- Chargeback management
Coffee Shop (Merchant) - $97.50
What they receive: Net proceeds after all fees
Effective cost: $2.50 or 2.50% of sale
What this covers for them:
- Convenience for customers (no cash handling)
- Guaranteed payment (no bounced checks)
- Fraud protection (chargeback rights, though risky)
- Faster checkout
- Higher average transaction size (cards = more spending)
Alternative Scenarios: How Fees Change
Scenario 1: Debit Card (PIN-based)
Same $100 transaction, different card type:
Customer uses PIN debit card:
┌────────────────────────────────────────────────────┐
│ Issuer interchange: $0.21 (Durbin-capped) │
│ Network fee (Interlink): $0.05 │
│ Processor markup: $0.30 + $0.10 │
│ ────────────────────────────────────────────── │
│ Total fees: $0.66 │
│ Merchant receives: $99.34 │
└────────────────────────────────────────────────────┘
SAVINGS FOR MERCHANT: $1.84 per transaction (74% lower fees)
Scenario 2: American Express
Same $100 transaction, Amex card:
Customer uses American Express:
┌────────────────────────────────────────────────────┐
│ Amex discount rate: $2.89 (2.89%) │
│ (Amex handles all fees internally) │
│ ────────────────────────────────────────────── │
│ Total fees: $2.89 │
│ Merchant receives: $97.11 │
└────────────────────────────────────────────────────┘
COST INCREASE: $0.39 more than Visa (16% higher)
Scenario 3: Card-Not-Present (Online)
Same $100 transaction, online purchase:
Customer enters card number online:
┌────────────────────────────────────────────────────┐
│ Issuer interchange: $1.95 (higher for CNP) │
│ Network fee: $0.15 │
│ Processor markup: $0.50 + $0.15 │
│ ────────────────────────────────────────────── │
│ Total fees: $2.75 │
│ Merchant receives: $97.25 │
└────────────────────────────────────────────────────┘
COST INCREASE: $0.25 more than card-present (10% higher)
WHY HIGHER?
• Higher fraud risk in CNP environment
• No physical card verification
• No signature or PIN
• Issuer assumes more risk
What Happens on the Cardholder's Statement
Tuesday 9:15 AM (Authorization)
CHASE CREDIT CARD STATEMENT
─────────────────────────────────────────────────────
Available Credit: $2,500
PENDING TRANSACTIONS:
Date Merchant Amount Status
──────────────────────────────────────────────────────
01/15/24 Coffee Shop Co. $100.00 PENDING
Available Credit: $2,400 (reduced by $100 hold)
Wednesday (After Clearing)
CHASE CREDIT CARD STATEMENT
─────────────────────────────────────────────────────
Available Credit: $2,400
POSTED TRANSACTIONS:
Date Merchant Amount Status
──────────────────────────────────────────────────────
01/15/24 Coffee Shop Co. $100.00 POSTED
PENDING TRANSACTIONS:
(none)
Statement Balance: $100.00
Minimum Payment: $25.00
Payment Due: 02/15/24
Customer Sees Full Amount
The customer is charged $100 and sees $100 on their statement. They don't see the fee breakdown—that's between the merchant and the payment ecosystem.
PayFac Platform Considerations
If a Payment Facilitator is involved (e.g., Stripe, Square, Shopify):
MONEY FLOW WITH PAYFAC:
═══════════════════════════════════════════════════════
Customer Pays: $100.00
│
▼
Issuer keeps: $1.80 (interchange)
│
▼
Network keeps: $0.15 (assessment)
│
▼
PayFac receives: $98.05 (from acquirer)
│
▼
PayFac keeps: $0.80 (platform fee: 0.80% + $0.10)
│
▼
Sub-merchant receives: $97.25
SUB-MERCHANT'S VIEW:
• Sees a single "processing fee" of 2.75% ($2.75)
• Doesn't see breakdown between interchange, network, PayFac
• Receives net deposit of $97.25
PAYFAC'S ECONOMICS:
• Pays out $98.05 to acquirer (interchange + network fee)
• Charges sub-merchant $2.75
• Keeps $0.70 as gross margin
• Must cover: compliance, support, tech, reserves
Timeline Summary: When Money Moves
| Time | Event | Money Status |
|---|---|---|
| Tuesday 9:15 AM | Authorization | Hold placed, no money moved |
| Tuesday 11:00 PM | Batch close | Transactions queued for clearing |
| Wednesday 3:00 AM | Clearing | Fees calculated, positions netted |
| Wednesday 10:00 AM | Settlement | Banks wire net positions |
| Wednesday 2:00 PM | Merchant funding | Coffee shop receives $97.50 |
Business Day Consideration
If Tuesday were a Friday, the merchant would receive funds the following Tuesday or Wednesday due to weekend processing delays.
See Also
- Transaction Lifecycle Overview - Understanding the three phases
- Failure Scenarios - What happens when things go wrong
- Settlement Files - Data exchanged during clearing
References
- Visa Interchange Rates - Official Visa interchange schedules
- Mastercard Assessment Fees - Current assessment fee structures