Payment processing is the system that moves money from a customer's card to a merchant's bank account. This guide explains every step, the companies involved, and how costs are determined.
The Payment Processing Chain
Every card transaction involves five parties:
- Cardholder — the customer paying
- Card issuer — the bank that issued the card
- Card scheme — the network (Visa, Mastercard, etc.)
- Acquiring bank — the merchant's bank
- Merchant — the business accepting payment
Step by Step: How a Transaction Works
1. Authorisation
The payment gateway captures card details and sends them through the payment processor to the card network and issuing bank. The bank checks the card is valid, has sufficient funds, and passes fraud checks. This takes 1-3 seconds.
2. Capture
The merchant confirms they want to collect the authorised funds. This may happen immediately or later (e.g., when goods are shipped).
3. Clearing
Transaction details are exchanged between the acquiring and issuing banks through the card network to determine final amounts.
4. Settlement
Funds are transferred from the issuing bank through the card network to the acquiring bank, then into the merchant's merchant account. This typically takes 1-3 business days.
Understanding Fees
The Merchant Discount Rate includes:
- Interchange fees — paid to the issuing bank (0.2-0.3% for UK consumer cards)
- Scheme fees — paid to Visa/Mastercard
- Acquirer markup — the acquiring bank's profit
Types of Payment Providers
- Payment Service Providers (PSPs) — all-in-one platforms like Stripe
- Payment Facilitators — process under a master merchant account
- Payment Orchestration — intelligent routing across multiple processors
Phone Payment Processing
Phone payments follow the same processing chain but require additional security. DTMF suppression captures card details securely before they enter the standard processing flow. Contact Paytia to learn more.