Payment Process FlowHow All the Different Parties Work Together to Make Payments Happen

Like the title implies, the cardholder is the person to whom a credit or debit card was issued.

The cardholder is the one who initiates a payment by using their credit or debit card to purchase goods or services. They authorize the use of their card to complete the transaction. While they’re responsible for ensuring they have sufficient funds or credit available to complete the purchase, another player (the issuer) is the one that actually validates this.

You’re the seller. You own or operate an enterprise that delivers things to buyers in return for  money. Those “things” could be tangible, like a candy bar, a motorcycle, or a flat-screen TV. You might also sell intangible items; services such as online tutorials or access to a certain software. 

You provide goods or services to the buyer and accept the buyer's payment card. But, you rely on a payment processor to actually collect funds from the buyer’s bank.

All credit cards are issued from an authorized financial institution, most commonly a bank.

The issuing bank is the financial institution that provides the cardholder with their credit or debit card. It manages the cardholder’s account, and approves or declines transactions based on the cardholder’s account status. This ensures the merchant will receive payment for the purchase in question.

The credit card issuer acts as the bridge between the consumer and card networks like Visa and Mastercard. They also take on a share of the liability.

Your customer has a bank… but your business has a bank, too. This is the acquirer.

Your acquiring bank is the institution where your merchant account is parked. Acquiring banks are not like consumer-facing “banks;” they don’t have branches with drive-up windows and ATMs. Rather, they’re there to receive and hold funds from each transaction on your behalf.

Acquirers are responsible for securing the flow of data. They ensure the funds from approved transactions are transferred from the issuing bank to your merchant’s account. And, they hold initial liability in the event of a dispute.

You can think of your payment processor like “the manager” that facilitates the transfer of funds from the customer’s bank to yours. They act as a middleman, looking out for your best interests and ensuring that the necessary data flows quickly and securely during the payment process.

The processor validates the cardholder’s information, then communicates transaction details between the bank, the merchant, and the customer. They’ll check with the issuer to make sure that sufficient credit or funds are available in the buyer’s account. And, they’ll also receive batched transactions from the merchant and route them to the right issuers to collect payment.

Gateways are software applications that work like data conduits. They enable cardholder and transaction information to stream smoothly between parties without exposing any data to outsiders. The gateway encrypts the information so it isn’t accessible by cyber criminals, then transmits it to the processor.

It’s like a secure portal for data transmission. Brick-and-mortar stores typically rely on their physical card readers to transmit payment data. But, online customers are actually interacting with the gateway when they key in card data on your checkout page.

Card networks  (sometimes referred to as “card schemes” or “card associations”) are the connective tissue that interlink every party within the payment process. Banks that issue or accept cards branded with the logo of one of the card networks are considered to be part of the network.

The card networks create and maintain the technological infrastructure used to conduct a card payment. They also develop and enforce all the rules that govern card transactions, and oversee all aspects of card usage on their network.

The network sets many of the fees you pay for the privilege of accepting their cards. Interchange fees, for example, are used to pay for upkeep of the card network infrastructure.