While credit card transactions are typically processed very quickly, what happens behind the scenes is complex. The process requires many components that collaborate with each other to ensure that funds move securely and efficiently.
Here’s an overview of the parties that participate in this process:
Cardholder
The cardholder is the individual who owns the credit card and uses it to make purchases for goods or services.
Merchant
The merchant is the business or service provider that accepts credit card payments from customers in exchange for goods or services.
Point-of-sale (POS) system
The POS system is the hardware and software the business uses to accept and process credit card transactions and includes terminals, card readers, and software applications.
Payment gateway
The payment gateway is a service that securely transmits transaction information between the business’s POS system and the credit card processor.
Credit card processor
The credit card processor, also called the “payment processor,” is a company that works with the card networks and issuing banks to authorize, authenticate, and settle credit card transactions on behalf of the business.
Card networks
Card networks—such as Visa, Mastercard, American Express, and Discover—facilitate communication between the credit card processors and the issuing banks and set transaction rules and standards.
Issuing bank
The issuing bank, also called the “issuer” or “card issuer,” is the financial institution that issues the credit card to the cardholder. It authorizes and approves transactions, and it provides the funds for the purchase.
Acquiring bank
The acquiring bank, also known as the “acquirer” or “merchant bank,” is the financial institution that has a contractual relationship with the business to accept and process credit card transactions. It settles funds with the issuing bank and deposits the funds into the business’s account.
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