![]() ![]() Instead, they act as a custodian and clearing house for their respective card brand. Visa and Mastercard aren’t banks and they don’t issue credit cards or merchant accounts. It is then the cardholder’s responsibility to repay their issuing bank under the terms of their credit card agreement. Issuing banks pay acquiring banks for purchases that their cardholders make. The issuing bank is also a member of the card associations (Visa and Mastercard). Issuing Bank (Cardholder Bank)Īs you’ve probably guessed, an issuing bank issues credit cards to consumers. ![]() Acquiring banks often enlist the help of third-party independent sales organizations (ISO) and membership service providers (MSP) to conduct and monitor the day-to-day activities of their merchant accounts. Acquiring banks are playing an increasingly hands-off role as the bankcard system evolves. Interestingly enough, many merchants don’t recognize their acquiring bank as the primary provider of their merchant account. The acquiring bank also deposits funds from credit card sales into a merchant’s account. Acquiring banks provide merchants with equipment and software to accept cards and handle customer service and other necessary aspects involved in card acceptance. ![]() An acquiring bank is often referred to as a merchant bank because they contract with merchants (businesses) to create and maintain accounts (called merchant accounts) that allow that business to accept credit and debit cards. Acquiring Bank (Merchant’s Bank)Īn acquiring bank is a registered member of the card associations (Visa and Mastercard). But what that really means is services provided to you, a merchant. It comes from confusion around the term merchant services. A common misconception is that the merchant is the processor. So with that said, a merchant is any business that maintains a merchant account that enables them to accept credit or debit cards as payment from customers (cardholders) for goods or services provided. But, only merchants that accept cards as a form of payment are pertinent to our explanation. Technically, a merchant is any business that sells goods or services. They then present that card at a business to pay for goods or services. But just to be thorough - a cardholder is someone who obtains a bankcard (credit or debit) from a card issuing bank. If you have a credit or debit card (as most of us do), you’re already familiar with the role of the cardholder. The key players involved in authorization and settlement are the cardholder, the merchant (that is, the business accepting the card), the acquiring bank (the business’s bank), the issuing bank (the cardholder’s bank), and the card associations (Visa and Mastercard.) Cardholder How Credit Card Processing Works: Key Players This is important because different fees are incurred at each stage, and a failure (or partial failure) in either step can result in increased costs and/or credit card sales not being deposited. Credit card transactions happen in a two-stage process consisting of authorization and settlement. Authorizations must be settled before sales can be deposited into you business’s bank account. The issuing bank then sends an authorization back through the card network to your processor before it finally ends up back at your terminal or software.Īs involved as the system sounds, obtaining an authorization for a transaction is just the first step. In just a matter of seconds, your terminal passes transaction information to a processor, and then through the card network to the issuing bank for approval. The bankcard networks that ferry billions of transactions between merchants (businesses), processors and banks are truly modern marvels. Card Associations (Visa and MasterCard).Once you’re done reading this article, check out our more detailed breakdown of where credit card processing fees come from.įor now, let’s dive in to how credit card processing works. Knowing the lay of the land will help you better identify how to get the best processing solution. But, it’s a good idea to have a general understanding of how credit card processing works because fees are incurred at various stages of the system. It isn’t necessary to have intimate knowledge of the inner-workings of the bankcard system in order to find the best credit card processor.
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