How do online payments via credit or debit card work?
Online credit and debit card transactions can be very complex, involving many different entities and several steps. The process for your business to accept credit or debit card payments online from customers involves several entities and many steps. Before we explore these in further detail, lets define some key terms:  Merchant account - A type of bank account required for a business to accept credit or debit card payments from customers. Issuer (A.K.A. issuing bank) - A financial institution that provides credit or debit cards to its customers. In the context of this guide, think of it as your customers bank. Card association (A.K.A. card network) - A collection of member financial institutions that process card payments based on an agreed set of rules. Major examples are Visa and Mastercard. Acquirer (A.K.A. acquiring bank or merchant bank) - A financial institution that processes a transaction based on information from the issuer and card association. They provide businesses with merchant accounts, and are licensed members of card associations. Payment processor - A term often attributed with varying definitions. In the context of this guide, a payment processor is the facility of an acquirer which transfers transaction details to the relevant card association. Payment gateway - Software that facilitates the transfer of a customers card details from a merchants website to a payment processor. (Like 'payment processor', this term is often attributed varying definitions, too.) From the customer completing the merchants checkout process, through to the merchant receiving the funds in their bank account, the overall process for online credit and debit card transactions takes place in two broad stages:  Authorization Clearing and settlement  1) Authorization, step-by-step  The customer completes the merchants checkout process and elects to pay via credit or debit card, submitting their card details. The merchant securely transfers the transaction information (including these card details) to their payment gateway. The payment gateway securely transfers the transaction information to the payment processor used by the merchants acquiring bank. The payment processor securely transfers the transaction information to the card association. The card association securely transfers the transaction information to the customers issuing bank, which checks there are sufficient funds to complete the transaction, and also runs checks to ensure the transaction is not fraudulent. The customers issuing bank submits a response to the card association, indicating whether the transaction is approved or declined. The card association relays this response to the merchants payment processor. The payment processor relays this response to the payment gateway. The payment gateway informs both the customer and the merchant of the response. 2) Clearing and settlement, step-by-step