How Are Payments Processed?

In order to accept payments from customers, an online shop needs a payment processor. A payment processor facilitates the transfer of payments between a customer’s credit/debit card issuing bank and the seller’s acquiring bank.

There are 4 main players involved in a card transaction:

Merchant, i.e. the owner of the website where customers can pay with a credit/debit card.
Cardholder, i.e. the customer who uses their credit or debit card to pay on the merchant’s website.
Acquiring bank, i.e. a financial institution which accepts card payments from customers’ issuing banks on behalf of the merchant.
Issuing bank, i.e. a financial institution which issues credit and debit cards to consumers on behalf of card networks (e.g. Visa and MasterCard).

processing-scheme

In order to make a card transaction possible, the merchant needs a payment gateway.

What is a payment gateway?

A payment gateway functions as a POS terminal but a virtual one. In brief, it is a solution for transferring transaction data to the payment processor which forwards it to a cardholder’s issuing bank and receiving a response (authorization approved or declined). More information can be found on a separate page dedicated to a payment gateway.

Cardinity facilitates the following processes:

Card authorization. Cardinity sends the customer’s card data to the card networks and the issuing bank for authorization. The card issuing bank either approves or declines the transaction and forwards the response to Cardinity.
Clearance. After Cardinity sends the transaction information to the card networks, the card networks validate the information and start the movement of funds from the cardholder to the acquirer.
Settlement. Cardinity receives funds from the cardholder’s issuing bank and transfers the funds to the merchant.

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