How Card Payments Actually Work
Why charges appear and disappear on your statement, explained by someone who built payment systems
I’ve worked extensively in electronic payments, and I see confusion about this constantly. Here’s how it actually works.
Two Steps, Not One
A card payment is made of two distinct parts:
- Authorization — putting money “aside”
- Settlement — actually transferring the funds
When you pay at a store or online, what you typically see is the authorization. This reduces your available balance temporarily, but no money has moved yet.
Why Charges Disappear
The merchant then has to tell the bank which transactions are confirmed (to proceed with settlement) and which to abandon.
If the merchant doesn’t settle within certain timeframes, the transaction is abandoned automatically. This is why you sometimes see a charge appear, then vanish a few days later.
It’s Not Over After Settlement
Even after settlement, a merchant can issue a compensating transaction if there was an error. This is how refunds work, and also how chargebacks get processed.
The Practical Implications
This two-step process explains several things people find confusing:
- Hotel holds: They authorize a large amount, then settle only what you actually spent
- Gas station pre-auths: They authorize $100, then settle the actual pump amount
- Pending charges: Authorization happened, settlement hasn’t yet
- Duplicate charges: Sometimes both authorization and settlement show temporarily
The system is more complex than “money goes from A to B,” but this complexity enables the flexibility we take for granted.