Card payment cycle
This section provides a high level overview of a typical face-to-face or card present transaction and how it is processed.
When paying for purchases with your card, the transaction appears to happen almost instantaneously after your PIN is entered. However, there is a complex payments infrastructure behind the scenes making sure that the transaction is processed correctly. The following diagram sets out the steps, numbered from 1 to 8, in a card transaction’s payments cycle for a typical face-to-face, also known as a card present transaction.
There are five stakeholders in the process:
This is a person holding a debit, credit or charge card issued by a financial institution.
Cardholders may be asked to place their card into the chip & PIN reader (also known as a PIN pad or terminal) themselves, or to hand the card to the merchant who will do this for them. Customer will then key in their PIN, to indicate their agreement to proceed with the transaction. An authorisation code will be given to the merchant for the transaction by the cardholder’s card issuer that will appear on the terminal receipt that is handed to the cardholder. The card issuer will debit the transaction to the cardholder’s account.
Alternatively, if the card does not have a chip (only a magnetic stripe) or the merchant does not have a chip & PIN terminal, the merchant will swipe the card through the terminal or use a paper voucher, that the cardholder will need to sign.
Retailer / merchant
A merchant sells goods or services to their customer (the cardholder). This can be face-to-face in a shop, where both the cardholder and their card are present, or when taking orders remotely e.g. over the phone for a restaurant take-away, a mail order from a catalogue, or a purchase over the internet. In this example, it is a card-not-present transaction.
The card transaction’s details are entered into the merchant’s terminal and are sent usually via the telephone line to its acquirer who will process the transaction and send it on to the relevant card issuer for authorisation and settlement.
A merchant will have negotiated a merchant service agreement with its acquirer to process payment card transactions on its behalf. Typically this agreement will also include the acquirer providing one of its own terminals, known as an acquirer owned terminal.
An acquirer is responsible for receiving the card transaction details from the merchant’s terminal, passing these through to the card issuer via the card scheme for authorisation and completing the processing of the transaction.
The acquirer will arrange the card transaction’s settlement and will typically credit the merchant’s nominated bank account with the funds within four working days.
The acquirer will also deal with any chargebacks or requests for information (RFI) that may be received from card issuers on any of their merchant’s transactions.
Card schemes are organisations that manage and control the operation and clearing of card payment transactions according to card scheme rules.
The card schemes are responsible for passing card transaction details from the acquirer to the issuer and for passing payments back to the acquirer which in turn pays the merchant.
American Express, Diners Club, JCB, Maestro, MasterCard and Visa (including Electron or Debit) are the card schemes that operate in the UK.
The issuer is the bank, building society or financial organisation that provides payment cards (debit, credit, pre-paid or charge card) to their customer or cardholder.
The issuer has responsibility for transactions made on cards that they have issued, and will be responsible for debiting funds from the relevant cardholder’s account.
Note: For American Express and Diners Club - the transaction process is slightly different as they act as Card scheme, Issuer and acquirer at the same time. An acquirer will be able to explain more about accepting these card types.