The functioning of cards and payments systems involves several steps and parties working together to

facilitate transactions. Here's a simplified overview of how it typically works:

1. **Card Issuance**: A financial institution issues a card (credit, debit, or prepaid) to a cardholder. The
cardholder activates the card and sets up a Personal Identification Number (PIN) if required.

2. **Card Authentication**: When the cardholder makes a purchase, they present the card to the
merchant. The merchant verifies the card's authenticity by checking security features like holograms,
logos, and the cardholder's signature (if applicable).

3. **Authorization Request**: The merchant initiates an authorization request by swiping, dipping, or

tapping the card on a point-of-sale (POS) terminal. The terminal sends transaction details (such as card
number, amount, and merchant ID) to the acquiring bank or payment processor.

4. **Authorization Approval**: The acquiring bank or payment processor forwards the authorization
request to the card network (e.g., Visa, Mastercard, American Express). The card network routes the
request to the card issuer for approval.

5. **Issuer Decision**: The card issuer receives the authorization request and verifies whether the
cardholder has sufficient funds or credit limit to cover the transaction. If approved, the issuer sends an
authorization code to the merchant through the same channels.

6. **Transaction Settlement**: At the end of the day, the merchant sends a batch of authorized
transactions to the acquiring bank or payment processor for settlement. The acquiring bank debits the
merchant's account and credits the issuer's account for the transaction amount.

7. **Funding and Clearing**: The card network facilitates the transfer of funds between the issuer and
the acquirer, ensuring that the appropriate amounts are settled between the parties.

8. **Statement Generation and Billing**: The issuer compiles all authorized transactions into a
statement for the cardholder, detailing purchases, payments, fees, and interest charges (if applicable).
The cardholder receives the statement either electronically or by mail and makes payments accordingly.
9. **Transaction Recording and Reporting**: All transaction data is recorded by the card network, issuer,
and acquirer for reconciliation, reporting, and compliance purposes.

10. **Security and Fraud Prevention**: Throughout the process, various security measures are in place
to prevent fraud, including encryption, tokenization, EMV chip technology, CVV codes, and fraud
detection algorithms.

This process occurs within seconds for in-person transactions at physical locations and may take slightly
longer for online or card-not-present transactions. Additionally, there are variations in the process
depending on factors such as the type of card (credit, debit, prepaid), the payment network, and the
specific technologies used by merchants and financial institutions.