Credit Card Processing

The following entities are central to how credit card processing works to securely capture payments at the point of sale (POS).

Consumer. The cardholder, or the person making the purchase.

Merchant. The person or business selling the product or service the consumer is purchasing.

Payment gateway. The technology that connects a merchant to a payment processor. Typically, a gateway integrates with card-present (e.g., in-store purchases) as well as card-not-present (e.g., online or eCommerce) payment environments, captures payment details for customer transactions and routes them to a payment processor or the merchant bank, and sends an “approved” or “declined” message to the merchant.

Credit card processor. Also known more generally as a “payment processor.” The entity that facilitates communication between the merchant, the credit card network, and the cardholder’s bank. Processors, along with merchants, are responsible for maintaining compliance with the Payment Card Industry Data Security Standards (PCI DSS). Some payment processors provide their own payment gateways, while others, typically the larger processors, have reseller agreements with payment gateways.

Card network. Also referred to as the “credit card network” or “credit card brand.” This is the brand of the customer’s credit card, such as American Express, Visa, Mastercard, or Discover. The credit card networks are responsible for setting interchange and assessment fees, as well as the standards for PCI DSS.

Issuing bank. Also referred to as the “cardholder’s bank” or “consumer bank.” This is the bank that provides the customer with their credit card. One of the primary functions the issuing bank serves in the credit card processing cycle is to determine whether the cardholder’s account holds the funds to complete a transaction, and to release those funds for settlement.

Acquiring bank. Also referred to as the “merchant bank.” This is the bank used by the merchant to hold their business funds and receive money from transactions. It can provide the merchant with card readers and equipment to accept card payments. The acquiring bank can also serve as a credit card processor.

* Please note that “merchant bank” and “merchant bank account” should not be confused with the similarly named “merchant account.” A merchant account, typically created by a merchant services provider, is an account that temporarily holds the funds from processed credit card (and debit card) purchases. As the merchant, you do not have direct access to this merchant account—it is simply a holding account for these funds, which are transferred to your business banking account once the settlement process completes.