How does an international debit/credit transaction work?


For example, I go to the UK with a US debit card and purchase something. What actually happens from that moment all the way until the transaction completes? Obviously, there are no British Pounds in that US bank account, yet people do it all the time.

In: Economics

You swipe your Visa in the UK and the point-of-sale device will call Visa and confirm all is good and to charge you 10 pounds. Visa makes the calculation to convert it from $ and charges your account that much. Then after 30-45 days, visa will pay the vendors bank the money electronically and the bank will credit the vendors account

It might make more sense if you see the money as something tangible, like gold. Then, assuming the size of the coins is different, the weight of gold to buy a toaster would have a different number of UK coins in comparison to the US coins, but you’d just get a scale out and give the right weight.

The exchange rate basically does that, but electronically. The banks have the information on the exchange rate. It reads the amount in £ and calculates the amount in $, subtracting that from your account (in $) and adding it to the shop’s (in £). International transactions also incur extra fees because it’s more work for the bank.

There are 5 parties in any card transaction: the purchaser, the issuing bank (the bank who issues the purchasers card), the payment network (Visa, MasterCard, etc.), the merchant’s bank, and the merchant.

The merchant and the purchaser approve the transaction.

The point-of-sale system, using the payment network, sends a request for money to the issuing bank.

The issuing bank then sends money to the acquiring bank. The banks take care of any currency conversion and the issuing bank decides on the exchange rate/fees