How Merchant Card Processing Works

Payment Processing

If you are new to the world of payment processing and wondering how it all works, this section should give you a good idea of the transaction process. It all happens in about thirteen steps:

Key Players

The traction process involves several key players but it all begins with the Cardholder. The remaining players are the Merchant, Acquirer, Issuer, and the Card Network (a network such as Visa, MasterCard, American Express or Discover).

Key Player Roles

• Cardholder: An authorize user of the credit card
• Acquirer: the financial institution or other organization that provides card processing services to the merchant
• Issuer: the cardholder’s financial institution (issues credit, debt and other cards).
• Merchant: Accepts payments for goods or services sold to the cardholder.
• Card Network: networks such as VISA®, MasterCard®, Discover®, and American Express® who authorizes and fund transactions

The Authorization Process

• Cardholder presents a card (account) and makes a purchase.
• The merchant submits the transaction to the acquirer.
• The acquirer electronically sends the transaction request to the card network.
• The card network sends the authorization message to the issuer/issuer processor
• The issuer validates the card number and approves or decline the transaction amount.
• The approval or disapproval is routed through the acquirer to the merchant and cardholder.
• The merchant completes the transaction accordingly.

Batching

• The merchant stores transactions in batches or process in real time.
• The merchant deposits the transaction receipts with the acquirer.

Clearing, Settlement and Funding

• The acquirer credit the merchant account (minus discount and transaction fees) and submit the transaction the the card network for settlement.
• The card network pay the acquirer and debits the issuer's account, then send the transaction to the issuer.
• The issuer post the transaction to the cardholder account and bills the cardholder.
• Cardholder receives the statement and pays issuer.