Understanding credit card processing basics allows you to make better-informed decisions about which payment solutions are best suited for your business. For example, you can avoid unnecessary add-ons and fees by designing a payment environment that only delivers the specific features you need to securely, quickly, and easily process incoming card-based sales.
In the next section, we’ll explore the details of how payment processing works. First, we need to meet the key parties that make each transaction possible:
- The cardholder is the customer who initiates an in-person or online purchase using a credit or debit card
- The card issuer is the bank that provides its customers with consumer plastic
- The merchant is the card-accepting business owner selling whatever goods or services the customer is trying to purchase
- The payment processor is responsible for securely routing the transactions captured by the merchant’s point-of-sale device to the customer’s card-issuing bank for approval
- The card association is the network maintained by the major brands (Visa, Mastercard, Discover, etc.). This card association is responsible for setting fees, resolving disputes, and establishing security guidelines for the network
- The acquiring bank is what the merchant uses to ultimately collect funds from the issuing bank. This may be the same entity as the merchant’s payment processor
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