# Transaction lifecycle
A transaction is a collection of actions performed with an issued card. The actions are represented by individual messages such as authorization, reversal, clearing, and dispute. These messages define the transaction lifecycle.
During its lifecycle, a transaction transitions through various stages from initiation to completion, depending on the actions taken by the cardholder, merchant, issuer, and card scheme.
A successful transaction typically transitions through the authorization, clearing, and settlement stages.
### Dual message system
In the European Union (EU), transactions are processed using the card scheme's dual message system, as follows:
1. The merchant sends an authorization message to instantly verify and hold the funds in the cardholder's account.
2. After the funds are verified, the merchant sends a clearing message at a later point in time to debit or credit the cardholder.
For example, when a cardholder makes an online purchase:
1. The merchant sends the authorization message with the purchase details to the issuer for approval.
2. After the merchant ships the items, the acquirer sends the first presentment message to the issuer to initiate clearing stage, where the merchant finalizes the transaction by requesting to capture the funds.
3. In the settlement stage, the funds are transferred from the issuer to the merchant.
---
## Transaction stages
You can monitor changes in a transaction's status as follows:
- [Configure your webhook server](https://www.checkout.com/docs/developer-resources/event-notifications/receive-webhooks/configure-your-webhook-server.md) and subscribe to [Issuing webhooks](https://www.checkout.com/docs/developer-resources/event-notifications/event-types.md#Issuing).
- [Use the Transactions API](https://www.checkout.com/docs/card-issuing/manage-issuing-transactions.md).
---
## Authorization
Authorization is the initial stage of a transaction, which is used to confirm the following:
- The card and cardholder are genuine.
- The cardholder has sufficient funds to complete the transaction.
- The transaction is not restricted.
The merchant sends the issuer authorization requests in near real time, and Checkout.com typically responds within one second.
If you’ve enabled the [authorization relay service](https://www.checkout.com/docs/card-issuing/manage-issuing-transactions/relay-authorization-requests.md), authorization requests are relayed to you so that you can approve or decline them.
---
## Clearing
Clearing is also referred to as first presentment. A transaction enters the clearing stage when the merchant submits a capture request to finalize the hold on the funds and post the transaction on the cardholder's account.
The merchant may request to only capture part of the initial authorization amount, known as partial capture.
The remaining amount can be captured in a subsequent capture request or canceled. If no action is taken, the hold expires.
Clearing messages contain additional information about the transaction.
For example, reconciliation amounts, interchange fees, acquirer fees, and cardholder billing amounts.
The card scheme uses this information to calculate the final amounts to be settled.
> **Information**
>
> The reconciliation amount is the amount settled with the card scheme, excluding interchange fees or any other fees.
> This amount is represented in the issuer's settlement currency.
---
## Settlement
When clearing is completed, the transaction enters the settlement stage, where the funds are transferred from the issuer to the merchant.
The card scheme runs five daily settlements. Checkout.com provides this information to you in reports.
If you use shared BINs, we report this per cardholder.
---
## Reversal
Reversal is the process of canceling or updating a previous authorization before the payment enters the clearing stage.
This stage can be initiated by either the merchant or the issuer.
**Merchant reversal**
A merchant reversal occurs when the merchant cancels the transaction after a successful authorization, but before it enters clearing.
The merchant may also choose to only reverse part of the initial authorization amount, known as a partial reversal. The remainder can then be captured in a partial capture request from the acquirer and enter clearing.
**Issuer reversal**
An issuer reversal occurs when the issuer fully or partially releases the temporary hold of funds.
While funds are held after a successful authorization, the cardholder cannot reuse them. When there are a large number of authorizations being processed, the cardholder may have a significant amount of inaccessible funds.
Checkout.com can perform an issuer reversal to give cardholders more flexibility in managing their funds, by releasing funds quickly and enabling cardholders to access them.
For example, when merchants are not reversing authorizations.
Checkout.com only performs issuer reversals under certain conditions, which are determined by the card scheme:
| Scheme | Description |
| --- | --- |
| Mastercard and Visa | After receiving a presentment that the acquirer marked as final for an amount less than the original authorization amount |
| Mastercard | Funds are released after:
- Seven days for authorizations
- 30 days for pre-authorizations and each incremental authorization |
| Visa | Funds are automatically released after:
- Five days – For card-present transactions and merchant-initiated transactions (MITs)
- Ten days
- For card-not-present (CNP) transactions and customer-initiated transactions (CITs)
- For [merchant category codes (MCCs)](https://www.checkout.com/docs/developer-resources/codes/merchant-category-codes.md) `4457`, `7033`, `7296`, `7394`, `7519`, `7841`, `7999`
- 30 days
- For CITs and CNP transactions
- For pre-authorizations with MCCs `3351–3500`, `3501–4010`, `4411`, `7011`, `7512`, `7513`
- For MCCs that cannot be parsed |
### Presentments received after issuer reversal
If Checkout.com receives a presentment after an issuer reversal, we honor presentments received during the clearing stage, as mandated by the card scheme. However, we can charge back these presentments with the reason `Authorization-Related Chargeback`.
### Reversals received after issuer reversal
If Checkout.com receives a merchant reversal after an issuer reversal, we decline the merchant reversal and send a `reversal_exceeds_authorized_amount` response code. We cannot release funds that are already released.
> **Information**
>
> For a full list of authorization errors, see [Issuing decline codes](https://www.checkout.com/docs/developer-resources/testing/codes/issuing-decline-codes.md#Authorization_errors).
### Issuer reversal scenarios
For example, a cardholder purchases an item for 100 EUR online. An authorization hold of 100 EUR is then placed on the card to ensure the cardholder has sufficient funds to cover the purchase.
You receive an [Authorization approved](https://www.checkout.com/docs/developer-resources/event-notifications/event-types/authorization_approved.md) webhook.
What happens next depends on the scenario. For example, if after seven days, the merchant does not capture the amount, then:
- Checkout.com releases 100 EUR.
- You receive an [Issuer reversal processed](https://www.checkout.com/docs/developer-resources/event-notifications/event-types/issuer_reversal_processed.md) webhook.
However, if after two days, the merchant successfully captures 90 EUR of the original authorization amount, then:
- Checkout.com receives a final presentment.
- You receive a [Presentment received](https://www.checkout.com/docs/developer-resources/event-notifications/event-types/presentment_received.md) webhook for 90 EUR.
For the remaining 10 EUR, if the merchant:
- Captures – You receive another Presentment received webhook for 10 EUR.
- Does not capture – Checkout.com releases the 10 EUR after the retention period expires, and you receive an Issuer reversal processed webhook.
---
## Refund
A refund occurs when the cardholder requests that the merchant returns the funds from a transaction after clearing is complete.
A refund can either be included in the transaction's clearing information, or be preceded by a refund authorization request that the issuer can approve or decline.
---
## Chargeback
A chargeback occurs when the issuer disputes a completed transaction on behalf of the cardholder. It can be for the full amount that was cleared or a partial amount, and is sent to the merchant.
In some cases, the issuer can reverse a chargeback. For example, the cardholder accepts liability for the dispute after the chargeback is initiated but before the acquirer responds.
> **Information**
>
> For more information, see [Manage Issuing disputes](https://www.checkout.com/docs/card-issuing/manage-issuing-transactions/manage-issuing-disputes.md).