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Visa authorization 1 Visa authorization NOW 2 Issuer then 3 Visa 4 Base II 5 Worked A Visa authorization starts when the merchant sends a request through the acquirer to VisaNet, which is Visa global processing network. Step 1 of 5 Visa authorization 1 NOW Visa authorization 2 Issuer then 3 Visa 4 Base II 5 Worked A Visa authorization starts when the merchant sends a request through the acquirer to VisaNet, which is Visa global processing network. Step 1 of 5
Issuer then decides whether 1 Visa authorization 2 Issuer then NOW 3 Visa 4 Base II 5 Worked The issuer then decides whether to approve the payment, using its own balance, credit limit, fraud and velocity checks. Step 2 of 5 Issuer then decides whether 1 Visa authorization 2 NOW Issuer then 3 Visa 4 Base II 5 Worked The issuer then decides whether to approve the payment, using its own balance, credit limit, fraud and velocity checks. Step 2 of 5
Visa calls its authorization system Base I 1 Visa authorization 2 Issuer then 3 Visa NOW 4 Base II 5 Worked Visa calls its authorization system Base I, and its clearing and settlement system Base II. Step 3 of 5 Visa calls its authorization system Base I 1 Visa authorization 2 Issuer then 3 NOW Visa 4 Base II 5 Worked Visa calls its authorization system Base I, and its clearing and settlement system Base II. Step 3 of 5
Base II 1 Visa authorization 2 Issuer then 3 Visa 4 Base II NOW 5 Worked Base II is the batch system that clears and settles Visa transactions. Step 4 of 5 Base II 1 Visa authorization 2 Issuer then 3 Visa 4 NOW Base II 5 Worked Base II is the batch system that clears and settles Visa transactions. Step 4 of 5
Worked example ties 1 Visa authorization 2 Issuer then 3 Visa 4 Base II 5 Worked NOW A worked example ties the flow together. Step 5 of 5 Worked example ties 1 Visa authorization 2 Issuer then 3 Visa 4 Base II 5 NOW Worked A worked example ties the flow together. Step 5 of 5

Steps of this lesson, in order.

0:00 / 3:47 Step 1 of 5

Visa Message Flow

Card Networks: Visa and Mastercard, Lesson 2 of 8, Narration 3:47, D08 Cards and alternative payments

InterchangeSettlementScheme fee

What you will learn

Your objective. By the end of this lesson, you will be able to explain visa message flow. A Visa authorization starts when the merchant sends a request through the acquirer to VisaNet, which is Visa global processing network.

Why it matters. This matters because card payments are the highest-volume payments most banks process, and the four-party model decides who pays whom, when, and what happens when it goes wrong.

Chapter objective: Learner explains how Visa and Mastercard networks operate, including authorization, clearing, interchange, scheme fees, and settlement, and compares the two networks for a merchant. Learner applies this skill in realistic banking scenarios, with clear examples and correct terminology throughout.

Key learning points

  • Visa authorization
  • Issuer then decides whether
  • Visa calls its authorization system Base I
  • Base II
  • Worked example ties

Key terms

Interchange: A fee paid by the acquirer to the issuer for each card transaction, set by the card scheme. It compensates the issuer for handling the transaction, funding the interest free period and managing fraud...

Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.

Scheme fee: A fee charged by a card scheme to issuers and acquirers for using its network, rules and brand. Scheme fees cover processing, clearing, compliance and fraud services.

Payment flow diagram showing Visa Message Flow.

Practise this lesson

Exercise

Read the ISO 8583 message message described in this lesson and identify its key parts.

Use the message structure, fields and example in this lesson.

  1. What to do. List the main blocks of the message, name the field that carries the amount, and name the field that identifies the payment.

Correct result. The message is made of blocks, each carrying a part of the payment instruction. The amount field and the identification field are the two a receiving bank checks first, because without them it cannot process or reconcile the payment.

Why. A message is only useful if you can read it. The blocks tell the receiving bank what to do, and the amount and identification fields are what it checks first.

Check your understanding

Practice question

A merchant asks why the same card sale costs them a different fee depending on whether the customer uses a debit card or a premium credit card. What drives the difference?

Takeaway and next step

What to remember

The next day, Visa settles the net amount to the acquirer, the acquirer credits the hotel, and the customer sees the debit on the account statement with the hotel name and the transaction date.

Open the message type from this lesson and inspect its fields, then find the field that carries the amount.

Open the ISO 20022 Message Explorer →

Builds on "Card Network Roles".

Transcript and full text

Show transcript

A Visa authorization starts when the merchant sends a request through the acquirer to VisaNet, which is Visa global processing network. The request is an ISO 8583 message, message type 0100, which carries the primary account number in field 2, the processing code in field 3, the transaction amount in field 4, the merchant identifier in field 42, and the card acceptor terminal identifier in field 41. VisaNet validates the message format, checks that the issuer is reachable, and forwards the request to the issuing bank or to the issuer processor that acts on its behalf. The whole routing step takes a fraction of a second, and VisaNet handles more than 65,000 transactions per second at peak times. The issuer then decides whether to approve the payment, using its own balance, credit limit, fraud and velocity checks. It returns an ISO 8583 message type 0110, which carries a response code in field 39, such as 00 for approved, 05 for do not honour, 51 for insufficient funds, or 91 for issuer unavailable. The issuer also returns an authorization code in field 38, for example 482913, which the merchant keeps as proof of approval. VisaNet routes the response back to the acquirer, which passes it to the merchant terminal or gateway. If the issuer does not respond within the network timeout, usually about 10 seconds, Visa can stand in for the issuer using Visa rules, a service called stand in processing, and approve or decline based on limits the issuer set in advance. Visa calls its authorization system Base I, and its clearing and settlement system Base II. Base I handles the real time authorization messages described above, and it also handles reversals, which cancel an authorization when a transaction is voided, and stand in authorizations when the issuer is offline. Base I does not move money, it only creates a hold on the customer funds and records the authorization for later clearing. The merchant must present the transaction for clearing within a time limit set by Visa, usually seven days for most card present transactions, or the authorization expires and the hold is released. Base II is the batch system that clears and settles Visa transactions. At the end of each day, the acquirer sends a Base II clearing file to Visa, which lists every captured transaction with its card number, amount, merchant, date and authorization code. Visa validates the file, matches each clearing record to its authorization, calculates the interchange due to each issuer, and produces a settlement report for each bank. The acquirer and issuer then settle the net amount through their settlement accounts with Visa, usually on the next business day. If a clearing record does not match an authorization, or if the amount differs, Visa can reject the record and the acquirer must correct it. A worked example ties the flow together. A customer pays 7,500 rupees at a hotel in Bengaluru with a Visa debit card issued by Punjab National Bank. The hotel terminal sends an ISO 8583 message type 0100 to its acquirer, the acquirer sends it to VisaNet, and VisaNet forwards it to the issuer. The issuer approves the payment, returns response code 00 and authorization code 731204, and places a hold of 7,500 rupees on the account. The hotel captures the payment at checkout, includes it in the nightly Base II file, and Visa calculates the interchange and scheme fee. The next day, Visa settles the net amount to the acquirer, the acquirer credits the hotel, and the customer sees the debit on the account statement with the hotel name and the transaction date.

A Visa authorization starts when the merchant sends a request through the acquirer to VisaNet, which is Visa global processing network. The request is an ISO 8583 message, message type 0100, which carries the primary account number in field 2, the processing code in field 3, the transaction amount in field 4, the merchant identifier in field 42, and the card acceptor terminal identifier in field 41. VisaNet validates the message format, checks that the issuer is reachable, and forwards the request to the issuing bank or to the issuer processor that acts on its behalf. The whole routing step takes a fraction of a second, and VisaNet handles more than 65,000 transactions per second at peak times.

The issuer then decides whether to approve the payment, using its own balance, credit limit, fraud and velocity checks. It returns an ISO 8583 message type 0110, which carries a response code in field 39, such as 00 for approved, 05 for do not honour, 51 for insufficient funds, or 91 for issuer unavailable. The issuer also returns an authorization code in field 38, for example 482913, which the merchant keeps as proof of approval. VisaNet routes the response back to the acquirer, which passes it to the merchant terminal or gateway. If the issuer does not respond within the network timeout, usually about 10 seconds, Visa can stand in for the issuer using Visa rules, a service called stand in processing, and approve or decline based on limits the issuer set in advance.

Visa calls its authorization system Base I, and its clearing and settlement system Base II. Base I handles the real time authorization messages described above, and it also handles reversals, which cancel an authorization when a transaction is voided, and stand in authorizations when the issuer is offline. Base I does not move money, it only creates a hold on the customer funds and records the authorization for later clearing. The merchant must present the transaction for clearing within a time limit set by Visa, usually seven days for most card present transactions, or the authorization expires and the hold is released.

Base II is the batch system that clears and settles Visa transactions. At the end of each day, the acquirer sends a Base II clearing file to Visa, which lists every captured transaction with its card number, amount, merchant, date and authorization code. Visa validates the file, matches each clearing record to its authorization, calculates the interchange due to each issuer, and produces a settlement report for each bank. The acquirer and issuer then settle the net amount through their settlement accounts with Visa, usually on the next business day. If a clearing record does not match an authorization, or if the amount differs, Visa can reject the record and the acquirer must correct it.

A worked example ties the flow together. A customer pays 7,500 rupees at a hotel in Bengaluru with a Visa debit card issued by Punjab National Bank. The hotel terminal sends an ISO 8583 message type 0100 to its acquirer, the acquirer sends it to VisaNet, and VisaNet forwards it to the issuer. The issuer approves the payment, returns response code 00 and authorization code 731204, and places a hold of 7,500 rupees on the account. The hotel captures the payment at checkout, includes it in the nightly Base II file, and Visa calculates the interchange and scheme fee. The next day, Visa settles the net amount to the acquirer, the acquirer credits the hotel, and the customer sees the debit on the account statement with the hotel name and the transaction date.

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