There are five entities in any card transaction. The cardholder, the merchant, the acquirer, the card scheme and the card issuer. The cardholder is usually a person looking to buy something. The merchant is someone like Booking. The acquirer is a company like Adyen. The card scheme is Visa or MasterCard. The card issuer is a bank, Barclays for instance.
Flow of information
Source
Flow of money
When the payment processor receives the transaction data, they bill the cardholder and deposits the money to the merchant's bank account. The bank account must be a merchant account.
The payment processor
A payment processor, also known as an acquirer, is the one that receives card transaction details (name, card number, expiry date, CCV code). They then pass on the information to the card issuer via the card scheme for authorisation. When you buy something from Booking.com, they pass on your card details to Adyen, that send the information to MasterCard or Visa, that send the information to Barclays. Barclays then authorise the payment, via the card scheme, to Adyen, to Booking.com.
The main job of the payment processor (besides passing on the information) is to deal with chargebacks and to respond to request for information from the issuer.
There may also be a payment gateway between the merchant and the payment processor. It is prohibited (at least in the US) to send transaction details directly from a website to a payment processor. The payment gateway acts as a physical payment terminal.
The merchant acquirer
The merchant acquirer recruits the merchant to join the network and provides front-end and back-end services. The merchant acquirer routes the transaction to the payment processor.
The card issuer
The job of the card issuer (typically a bank) is to issue card, bill the card holder and collect payment.
The card holder
The credit card holder's liability is limited to $50 in the US (regulation Z). Regulation E affords similar limitations on liability to debit cards.
The issuing bank
The issuing bank is responsible for authorisation of the payment. That means checking that the card holder has sufficient credit and carrying out fraud checks. After authorisation comes clearing and settlement. Settlement is the process of clearing the debt incurred by the card holder when the purchase was made. Clearing is a set of transfers that happen after purchase and before settlement. Money usually don't change hands. Instead, lots of transactions are netted. Clearing also includes meeting reporting requirements and the exchange of information this entails. The most common example of
clearing is the exchange of transaction information from the merchant to
the bank.
What is authorisation?
Authorisation is the process of obtaining permission
from the bank that issued the card to accept the card for payment.
What is clearing and settlement?
Clearing and
settlement is the process of sending transactions through the Visa or MasterCard network
so that the merchant can be paid for the sale
