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Credit Card Processing Explained — Who All the Players Are

A Lot of People Work Together to Process a Credit Card

Posted Dec 28, 2017
World map showing the interconnectivity of credit card transaction process and all the organixations and people who are part of the card approval process.

A lot goes into the convenience of a consumer swiping their credit card at your business. Of course, for you, the merchant, the big thing you see is fees, right? But there’s so much more that affects your card fees and, potentially, your cash flow. We’re going to clear up the misconceptions and unknowns around this really complex matter. And try to have a little fun with it, too.

Over the next few weeks, we’re running a series of articles that will shed light on all things credit card processing. From who is involved, to how transactions really work, to why all those fees are there, to what you can negotiate and how you can potentially lower those fees.

So buckle up, grab your coffee and let’s charge into it. See what we did there?

Let’s talk about the credit card transaction process, or should we say, transaction party! A lot of people are involved and play a major role.

First up, the networks. The names of these guests aren’t likely that familiar to you. At Simpay, for example, we work with Global Payments and First Data. You know how there are people at every party who seem to know “everyone?” Well, they are these networks! They collect information and ensure all the parties involved with a transaction have the data they need.

Next, you have your associations. That’s the fancy name these guests go by, but you’re actually very familiar with them – Visa, MasterCard, Discover, and American Express. Associations license their names and set “interchange tables,” but they don’t actually facilitate transactions or fund any money.  They are important to our party because those interchange tables are like a menu with 900 choices.  

Except rather than food items, this menu details all the many criteria that determine the fee a merchant will be charged for accepting their credit cards. Another big difference is that no one can make a meal/price substitution. These rates are non-negotiable. Perhaps we should think of associations as the Iron Chefs of the party!

Now let’s take a look at the card your customer hands you. Besides saying Visa or MasterCard, it also says Chase, First National, Wells Fargo, or some other financial institution. What does that mean? The name on that card is the issuing bank. They will tell you if your customer is approved to make the purchase. And if they’re bringing a dish, it’s a big one. That’s because they are the ones who actually fund the money that allow the sale to happen and for you to get paid.

What is an acquirer?

Don’t confuse this guest with another bank attendee. The bank you have your store’s account with is the acquiring bank. The acquiring bank is set up in your payment software to receive the funds that the issuing bank releases. We call them the “acquirer” because, in the card payment process, this bank acquires the funds from the bank that issued the card to your customer, and that’s how you ultimately get paid in a card transaction. 

We have one more attendee to introduce, the Independent Sales Organization (ISO). Simpay is an ISO. It may surprise you to learn that banks actually do not provide card processing services! That’s the work of the ISO. If you’re getting your card processing services through a bank currently, be aware that they’re actually passing your account to an ISO to do the actual work.

We can think of the ISO as the host of this party. You see, it’s the ISO that actually decides who to invite to the party. And if you, the merchant, are the guest of honor, it’s up to the ISO to ensure everyone invited is working together to make your party (digital transaction) run smoothly and that you have an outstanding time (your transaction is verified as trustworthy and funds move into your account properly).

There are a couple other things you should understand about your host, the ISO. ISOs must be sponsored and registered through a bank approved and licensed by Visa, MC, Discover and Amex before they can offer card processing services. This protects you and the other guests at our party.

In part 2, we cover the transaction process and go inside the swipe. Read about how all these guests team up to make a card transaction work and put money in your account.