Inside Payment: What Really Happens
During a Card Transaction
A lot goes on in the few seconds after travelers swipe their cards and then wait for transactions to go through. Even more happens after paying the monthly bill. Travel
managers who have taken on payment, or who think they might, should understand what happens behind the scenes and who's waiting in line for a cut of the fees.
The traveler makes a purchase with a
The acquirer tells the merchant
that the transaction is approved.
The network tells the acquirer
that the issuer has approved
The issuing bank tells the network
that it has approved (or denied)
The card network (think American Express,
MasterCard, Visa, Diners Club) clears the
transaction by making sure cardholder
details match, checks for fraud and sends
the details to the bank that issued the card
The acquirer and the issuer each uses part
of its share of the interchange fee to pay
the card network.
The card issuer—the bank that issues
network-branded credit cards to corporations and consumers—verifies the cardholder and card number and assures the
account has enough credit to complete
the purchase. Note that some banks are
both acquirers and issuers.
The issuer pays the acquirer the purchase
amount minus the issuer's cut of the
interchange fee, which is expressed as
a percentage of the transaction amount.
The merchant's acquiring bank essentially
acquires the transaction from the merchant,
handling both processing and settlement of
the payment. It does so by relaying transaction data and authorization requests to the
issuer through the card network.
The acquirer pays the merchant what's left mi-
nus the merchant discount fee, which includes:
• a standard processing fee ranging from
several dollars for large-ticket items to a
• the acquirer's share of the interchange fee
• takes a cut
• pays the
• pays the network for authorization (and perhaps other
services, such as sending fraud alerts and statements
• pays company rebates
• pays cardholder rewards
• pays virtual card providers for technology and processing
• covers risk, as the issuer is closest in the
settlement chain to the cardholder
APPROVED APPROVED APPROVED
CARD NETWORK ISSUING BANK
PAYMENT PROCESSING: WHERE DOES THE DATA FLOW?
SETTLEMENT: WHERE DOES THE MONEY GO?
WHAT IS THIS INTERCHANGE FEE?
Acquirers, which operate as a clearinghouse during the settlement process, charge
merchants interchange fees, which the acquirer and issuer divvy up and use to cover
handling costs and payouts, including to the network. As the entity that assembles a
network of merchants and makes it possible for a card to be used at those merchants,
a card network publishes suggested interchange rates. It bases those suggestions on
whether the cardholder is present, whether it's a large-ticket item (typically more than
$7,000), card type (i.e., premium/gold/platinum), whether it's a chip card and whether the country where the card is issued is different from the transaction's point of sale.
An issuer might raise the interchange fee for a card with a lot of perks.
PAYMENT & EXPENSE EDITOR JOANN DELUNA
The traveler pays
the credit card bill
by sending money
to the issuer.