When you slide your credit card or ewallet card into a POS machine, it reads the magnetic strip on the card into the merchant's POS system. Any additional information such as a pin, or signature is then added and the merchant then transmits the information with encryption through the Internet, into a payment gate way and finally into into the merchant's bank, which then checks the credit card issuer's information on your credit card. Once that is done, the credit card issuer checks to see if your card is in good standing and then authorizes or denies the payment. Here's a diagram to give you a visual.
