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.
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