Card (debit/credit) Paymnet System

There are five (5) entities involve in this card payment system.

Cardholder: A cardholder is a person who obtains a bank card (debit/credit) issued by a bank. The person or cardholder can use his/her card to a merchant for payment.

Issuer Bank:  An issuer bank issues debit/credit cards to consumers. The issuer bank is also a member of the card associations (Visa and MasterCard). Issuer banks pay acquirer banks for purchases that their cardholders make.

Merchant: A merchant is any business that sells goods or services. But, only merchants that accept cards as a form of payment are pertinent to our explanation. 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.

Acquirer Bank: An acquiring bank is a registered member of the card associations (Visa and MasterCard). An acquiring bank is often referred to as a merchant bank because they contract with merchants to create and maintain accounts (called merchant accounts) that allow the business to accept credit and debit cards. Acquiring banks provide merchants with equipment and software to accept cards and handle customer service and other necessary aspects involved in card acceptance.

Processor/Card Network:  Processor or a card network creates a network with the different banks to assure the different service and security regarding the financial transactions or payments, made through the different banks. VISA, MasterCard and Rupay (card payment network in India) are the renowned processors.

Let check the below diagram with a small story to understand the flow.

In our story X (cardholder) go to McDonald’s (merchant). X take a burger and soft drinks for 100 bucks (approx). X offer his/her card (debit/credit) for the payment.

A person swipe X’s card in the POS system provided by the Acquirer bank. When person from merchant swipe X card a request send to acquirer bank carrying the information that X card has been swiped, is it valid ?. Then acquirer bank forward the request to card processor for verification then card processor verify the same request with the issuer bank.  For valid card positive response will send to merchant through card processor and acquirer bank.

After this full process X can enjoy his/her meal. The amount (100 bucks) will immediately deduct from X account but the merchant will get the amount after some time (may be after a day).