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Monday 18 August 2014

What Happens When I Pay With My Credit Card?

Short answer is a lot. Nearly all of it is behind the scenes. When you request to book a flat on FlatClub - it’s no different and we think the details are actually pretty interesting. Whether it’s a confirmed request, declined request, or cancellation, this post will help you understand exactly what happens and why. Let’s start with the lingo. Here are the most important payment system terms to understand.

The Vocabulary

Gateway: the service that receives, records, and encrypts your card details to send them to the payment processor. The gateway connects FlatClub’s website to the payment processor.
Payment Processor: the company that handles FlatClub’s bank transactions and communicates with FlatClub’s bank. It sorts and sends your card and purchase details to your credit card company.
Pre-auth: Pre-authorization happens when you make a credit card transaction, but the bank holds, or sets aside, those specific funds instead of sending them to FlatClub until after your successful check-in. While the money is still in your bank account, you cannot use it until the pre-auth period is over.
Credit Card Company: The company you got your credit card from, such as Visa or Mastercard.
Encryption: When information is encoded so that only verified parties (your credit card company, your bank, etc.) can read it.
Issuer: The bank that approved your credit card and gave it to you to use.
Merchant: FlatClub!

Your Booking Was Confirmed?

Great! Here’s what happened

It’s a complex process to make your booking successful. If all goes well, all you see is a return confirmation. However, from the moment you enter your card details, several companies must handle the information so that your bank can handle your money properly. This list outlines what happens during the process of a successful confirmed booking on FlatClub.

  1. You enter your card details into the booking payge and send your request.
  2. Your card details go from FlatClub to the gateway for encryption.
  3. The payment processor sorts and requests pre-authorization. 
  4. Your credit card company runs fraud detection and sends the pre-auth request to the issuer (your bank) to be approved or rejected. 
  5. Your bank accepts or rejects the pre-auth request and tells the credit card company.
  6. If accepted, your credit card company adds the transaction to your bill and sends the info about funds held by pre-auth to the payment processor.
  7. The payment processor confirms a successful pre-auth to FlatClub.
  8. FlatClub confirms your request as valid and greenlights the host to accept or reject.
  9. If the host accepts, your pre-authorized payment is transacted and you’re booked!

A Declined Booking

It happens that booking requests are declined. When that happens, the successful pre-auth must unwind and the process takes a different turn at step 8. Your money is still in your account and the info must go back through the channels to release the pre-auth funds.
When a host declines, the path picks up at:
  1. FlatClub communicates a decline through the gateway to the payment processor.
  2. The payment processor tells the credit card company to release your pre-auth’d funds.
  3. The credit card company notifies your bank that these funds should be available.
  4. Your bank must process this info, release your held funds, and notify the credit card company to complete the circle.
  5. Your credit card and bank statements are changed to show those funds are available.

A Confirmed, Then Canceled Booking

Things happen and plans change. What happens to your credit card when you have a confirmed booking but decide to cancel later? Here’s the process that happens from requesting your booking to after your cancellation.
The Confirmed Booking Process from numbers 1-9 still applies. The path then picks up at:

  1. The same process has to happen in reverse. After a successful booking, the funds are held in FlatClub’s account (to be transferred to the host 72 hours after check in). Through the gateway, FlatClub then tells the payment processor to initiate a refund.
  2. The payment processor sends this information to your credit card company.
  3. The credit card company checks the refund request against your past account activity, and notifies your bank a refund should be accepted.
  4. Your bank must process this information, and greenlight the credit card company to accept the refund.
  5. The credit card company receives the processed refund from the merchant’s bank, and notifies your bank.
  6. Your credit card statement is changed to show those funds have returned.

*The time it takes for these processes to happen usually depends on the time it takes your own bank to make a decision, perform the task, and alert the next party in the transaction.

The Illustration

Visualizing this process can be difficult. First Atlantic Commerce has allowed us to use their diagram to illustrate all the steps.

Why Pre-Authorization?

Pre-auth helps both the merchant and the customer.

  • Fraud Detection for you - It gives the processor time to make sure you are the one trying to pay. 
  • Fraud Detection for us - It gives us time to make sure we charge a valid card.
  • It guarantees to a host that your reservation request is ready to go.
  • If the host declines your request, you don’t have to request a refund because the payment wasn’t processed.
  • When the host confirms your booking request - you don’t have to re-enter payment info.
  • If you change your mind after sending a request, (because for example your better half also booked a different flat on FlatClub) you don’t have to request a refund.


Payment systems are wildly complicated, but essential to FlatClub’s process. This is also one of our most frequent customer service inquiries. Our goal was to pull back the veil on how and why the process takes time and looks the way it does on your bank statements. How did we do? Let us know if you now understand about the behind the scenes booking process on our system! Talk to us on Facebook, Twitter, or G+