Payments & Money APIs · Money & Payments Fundamentals
How Card Payments Work
Merchant, PSP, acquirer, network, issuer; authorization, capture, clearing and settlement.
A card payment involves the customer, the merchant (you), a payment service provider (PSP — Stripe, Adyen, Braintree, Checkout.com) usually acting as or with the acquirer, the card network (Visa, Mastercard) and the issuer (customer's bank). Flow: authorization (issuer approves and holds funds) → capture (merchant claims the amount) → clearing and settlement (funds move, usually T+1–T+3) → payout to your bank. Refunds and chargebacks flow back the other way. Understanding these stages explains why payments are asynchronous, why amounts can change between auth and capture, and why reconciliation is needed.
Card payment lifecycle
| Stage | What happens | Typical timing | Can fail? |
|---|---|---|---|
| Authorization | Issuer approves and holds funds | Seconds | Declines, 3DS challenge |
| Capture | Merchant requests the held amount | Immediately or within auth validity (often ~7 days for cards) | Expired auth |
| Clearing | Transaction details exchanged via network | Same/next day | Rare |
| Settlement | Funds move issuer → acquirer | T+1 to T+3 | Rare |
| Payout | PSP pays merchant's bank (net of fees) | Daily/weekly schedule | Bank details |
| Chargeback | Customer disputes via issuer | Up to ~120 days+ | Merchant may win or lose |
Flow
Customer ──card──▶ Merchant checkout ──▶ PSP/Acquirer ──▶ Card network ──▶ Issuer
◀── approve/decline (auth) ◀──────────────┘
Merchant ──capture──▶ PSP ──clearing/settlement──▶ network ⇄ issuer
PSP ──payout (net of fees, refunds, disputes)──▶ Merchant bank account
Common pitfalls
- Treating authorization as money received.
- Assuming payouts equal sales (fees, refunds, reserves, disputes).
- Ignoring the long tail of chargebacks.
Key points
- Auth ≠ capture ≠ settlement ≠ payout
- Payments are asynchronous
- Money flows back via refunds and disputes
Further reading: Stripe: Place a hold (auth and capture)
Practice questions
What's the difference between authorization and capture?
Answer
Authorization asks the issuer to approve and hold funds; capture tells the PSP to actually collect the (possibly smaller) amount, after which settlement occurs.
Why don't payouts equal your gross sales?
Answer
Payouts are net of processing fees, refunds, chargebacks, reserves and timing differences between settlement batches.
Open in the app to mark lessons complete, take notes and track your progress.