Validate virtual credit card transactions from encoded IDs

Q: Validate virtual credit card transactions from encoded IDs

This is a System Design interview question from Capital One for Machine Learning Engineer roles. View the full question and solution on PracHub.

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Question

You are designing logic for a virtual credit card product.

Part 1: Product reasoning

Explain key benefits and drawbacks of virtual credit cards for:

end users,
the issuer (e.g., a bank).

Part 2: Transaction validation rules

A transaction is described by:

card_number : a 16-digit string
transaction_id : an 8-digit string
amount : integer dollars

Certain attributes are encoded in the digits:

Transaction ID (8 digits, positions counted from left starting at 1)

If the 7th digit is 1 ⇒ transaction is online ; if 0 ⇒ offline/in-person .
If the 6th digit is 1 ⇒ type is charge ; if 0 ⇒ type is authorization .

Card number (16 digits, positions counted from left starting at 1)

If the 15th digit is 1 ⇒ merchant-bound ; if 0 ⇒ not merchant-bound .
If the 14th digit is 1 ⇒ network is Master ; if 0 ⇒ Visa .
If the 13th digit is 1 ⇒ multi-use ; if 0 ⇒ one-time-use .

Validity rules by network

A transaction is valid if it satisfies the rules for its network:

Visa: valid iff

( merchant_bound AND multi_use ) OR
( online AND amount < 100 AND type is NOT authorization )

Master: valid iff

( amount < 100 AND (online OR offline) AND NOT merchant_bound ) OR
( merchant_bound AND amount > 100 )

Tasks

Describe an approach (data model + validation flow) to determine whether a transaction is valid.
For the following example, determine whether it is valid:
- card_number = "1234567891011111"
- transaction_id = "50781100"
- amount = 150
Explain how you would test this logic (unit tests and edge cases).