This section provides a high level overview of a typical face-to-face or card present transaction and how it is processed.
Card transaction process
When paying for purchases with a card, the transaction appears to happen almost instantaneously after the 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 or card present transaction; there are five stakeholders in the process.
Cardholder
This is a person with a debit, credit or charge card issued to them by a financial institution.
The cardholder may be asked to place their card into the chip and PIN reader (PIN pad or terminal) themselves, or hand the card to the merchant who will do this for them. Alternatively, if the card does not have a chip (only a magnetic stripe) or the merchant does not have a chip and PIN terminal, the merchant will swipe the card through the terminal or use a paper voucher.
The customer will then key in their PIN, or sign, 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.
Retailer / Merchant
A merchant sells goods or services to their customer (the cardholder). This can be face-to-face in a shop on the high street, 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, usually, sent via the telephone line to their acquiring bank who will process the transaction and send it on to the relevant card issuer for authorisation and settlement.
Acquirer
A merchant, will have negotiated a Merchant Service Agreement with their acquiring bank to process payment card transactions on their behalf. Typically, this agreement will also include the acquiring bank providing one of its own terminals, known as a bank owned terminal.
An acquiring bank is responsible for receiving the card transaction details from the merchant’s terminal, passing these through to the card issuer (the cardholder’s bank or building society) via the card scheme for authorisation and completing the processing of the transaction.
An acquiring bank will arrange the card transaction’s settlement and will, typically, credit the merchant’s nominated bank account with the funds within four working days.
An acquiring bank will also deal with any chargebacks or requests for information (RFI) that they may receive from card issuers on any of their merchant’s transactions.
Card Scheme
Card Schemes are organisations who 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 acquiring bank to the issuer and for passing payment back to the acquiring bank who in turn pays this to the merchant.
American Express, Diners Club, JCB, Maestro, MasterCard and Visa (including Electron or Debit) are the card schemes that operate in the UK.
Issuer
The issuer is the bank, building society or financial organisation that provides a payment card (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 acquiring bank at the same time. An acquiring bank will be able to explain more about accepting these card types.
