Originally Posted by reclusive46

In-flight they are processed in three different ways (there are a few slightly different methods but I won't go into these).

The most common way is deferred authorisation and is also the riskiest. The terminal litterally stores the track data of the card (You can't do this with chip cards) and upon landing the transactions are authorised as if they had been processed at the time of plugging in the machine to an internet connection, transactions can decline and the merchant will lose out.

The second way is via the chip, the chip authorises the transaction offline assuming its below the floor limit the issuer set on the card and the floor limit the airline has on their terminal. In this case, no authorisation is obtained and the transaction will be settled (you won't see a pending transaction online, it'll just post a couple of days later), the merchant will be gurarranted payment. If the cardholder didn't have enough credit or funds they will go overlimit or overdrawn (even if they didn't have an overdraft). Many debit cards that are issued to high risk individuals or minors will automatically decline and will not work offline. These are often referred to as X2X cards (I.e. Mandatory authorisation cards). Magnetic stripe cards still work with these airlines but the floor limit is usually much much lower (usually £100 (170 USD) or airline currency equivalent vs £500 (860 USD) for a chip card). Cards which use online PIN or signature will both be verified by signature as a PIN will not be able to be checked, offline PIN cards will have the PIN checked.

The third method is procesing the transaction online via satelite or wifi.

The chip doesn't know if you have the available credit but it'll have some risk paremeters set in it by the issuer, these are updated every so often when you make a transaction. During every transaction, the chip will tell the terminal if it can process offline, the terminal then decides if it wants to go online or offline, these days it'll usually go online if it can anyway.

I hope this helps and I hope I haven't missed anything out, I typed this up on my phone.