November 15, 2021

Payment Life Cycle

Payment life cycle is the term used to describe the payment journey, from beginning to end. The life cycle depends on the payment method.

There are different life cycles for different payment methods. For a card payment the life cycle looks like this:

A consumer decides to make a purchase is made using their credit card. The merchant forwards the request to their acquirer (often via the merchant's payment service provider). The acquirer forwards the request to the card scheme associated with the buyer’s credit card (Visa, Maestro, American Express etc.). The credit card scheme forwards the request to the issuer, i.e. the financial institution that issued the customer's credit card.

The issuer checks if the cardholder has sufficient funds to cover the transaction. If so, a confirmation is sent back along the entire chain until it arrives at the merchant and the checkout is completed successfully. However the merchant does not receive the funds immediately, but as part of the settlement process. During settlement, all fees are deducted from the transaction amount, and the merchant is credited the remainder. Settlement can happen, daily, weekly, monthly, or at any agreed interval. The PSP used to process the payment forwards the funds to the merchant's account minus any processing fees and the various cuts deducted from the sum by the different players involved.

You can find more information on the payment life cycle in this article

An adapter is the technical component that is used to integrate and connect an acquiring bank or PSP into the IXOPAY gateway. Transactions are sent via the adapter to the PSP, and transactions are submitted using an API (application programming interface). You can find more details on the PSPs supported by IXOPAY in our full list of payment providers.

A connector is used to connect to PSPs or acquirers, and refers to an adapter that has been configured for a specific merchant. All transactions routed through the acquiring bank or PSP are processed via the merchant's connector

A payment service provider (PSP) combines the functions of both a payment gateway and a payment processor. A PSP can connect to multiple acquiring and payment networks. Additionally it can also be an acquirer and provide risk assessments and other financial services. For merchants, it is often cheaper and more convenient to use the services of a payment orchestration platform like IXOPAY, rather than have different contracts with various payment gateways, processors and acquiring banks.

In the payments industry, the term "transaction" means the transfer of a specified amount of funds from a customer to a merchant, e.g. for goods or for fulfilling other obligations between the two parties. Funds are usually transferred by means of card payments or local payment methods (bank transfers, digital wallets, mobile payments etc.).

A failed transaction is a transaction that is either not not completed or not processed. There are many reasons why a transaction can fail, such as connectivity issues, incorrect payment details or a lack of funds to cover the payment.