Swiping credit card for a cup of coffee

John has a Visa credit card in his wallet. This credit card has been issued to him by Wells Fargo Bank. He is going to buy coffee at the local Starbucks. Coffee costs $4.00, so John swipes his credit card through the credit card reader.

When John swipes his card, the card reader grabs the credit card number and other information from the magnetic bar and sends that information to the Starbucks Merchant Account (more on this coming up).

Let’s assume that the Starbucks Merchant Account is with the Chase Bank. The card reader sends the card information to the Chase Bank. The Chase Bank forwards that information to the credit card’s issuing bank which happens to be the Wells Fargo Bank. When Wells Fargo Bank receives this request, it verifies whether John has sufficient funds in his account. Then Wells Fargo Bank sends a response to the Chase Bank stating that the request was approved. Chase Bank, in turn, forwards that response to the card reader. Finally a receipt is printed for John, who walks away with his coffee and the receipt.

In short, the following things happened when John swiped his card:

  • Card reader grabs the information from the card.
  • Card reader sends a request to the Chase Bank.
  • Chase Bank forwards the request to Wells Fargo Bank via the “Visa interchange and settlement system”.
  • Chase Bank forwards the request to the Wells Fargo Bank.
  • Wells Fargo Bank verifies whether John has sufficient funds.
  • Wells Fargo sends a success response to the Chase Bank.
  • Chase Bank forwards the success response to the card reader.

All those transactions occurred in less than 3 seconds. Amazing! Right?