Here’s a diagram of all the players in a payment cycle:
First, and most importantly, there is your customer.
The person with the credit or debit card, the device to make a payment. They are providing money for the good or service.
Next, there is the merchant. This person accepts payment for the good or service they are delivering. The merchant is a business selling the good or service.
In order to accept payments, merchants need to be joined up with the card scheme, like Visa or Mastercard. These are networks that connect millions of cardholders with millions of merchants across the world. Meaning you can be in different geographies and use the same card to pay. They don’t hold any of the funds, all they do is provide the communication infrastructure between various parties.
Back to the merchant, in order to have a relationship with the card scheme, they need an acquirer. An acquirer takes responsibility for the merchant being able to accept card payments. We’ll come back to that later when we talk about different transaction types.
Back to the customer (or the cardholder). They’ve been issued this card by an issuer. This is the bank or institution that takes responsibility for the cardholder side being creditworthy to complete the transaction. When the cardholder presents their card for payment, the issuer guarantees those funds are guaranteed back to the merchant. Again, this is all done through the card schemes.
Let’s take an example and show how the flow of funds and information goes through these parties:
Step 1. The customer takes out their card ready to pay. They begin to process a payment. We’ll leave aside whether that’s card present or card not present, and come back to define these later.
Step 2. The customer has submitted their card details somehow to the acquirer. The acquirer sees that information and passes it on to the card schemes, who pass it on the issuer.
The issuer will then decipher whether there are enough funds in the account to cover the payment, whether the card was stolen and whether the issuer is comfortable with the transaction – perhaps, for example, the transaction is happening in Dubai, but the customer has never been to Dubai, therefore the issuer is not comfortable processing the transaction.
The issuer will then send a message saying ‘yes’ they have enough money ‘no’ the card has not been stolen and ‘yes’ we guarantee we’re going to provide these funds to the card schemes. The card schemes then pass this message back to the acquirer. And the acquirer routes the message back to the cardholder through some sort of Gateway, like Judopay.