Merchant Credit Card Account Basics

When processing credit cards, there are several participants in an average transaction:

• Cardholder. A cardholder is an individual to whom a card has been issued or someone who is authorized to use the card. During a transaction, the cardholder offers the card or its account number for payment in exchange for products or services.
• Merchant credit card account user. This is a commercial or non profit entity or an individual that, according to a merchant processing agreement is authorized to accept bank cards and access terminals when properly presented.
• Acquirer. An acquirer (processor) is a licensed Visa and MasterCard member bank that acquires the information relating to a transaction from the merchant credit card account user and submits that information for authorization. The processor also provides clearing and settlement functions to exchange funds between the retailer and the issuer.
• Card issuer. An issuer is a licensed Visa and MasterCard member bank that issues bank cards or access POS terminal to consumers. Issuers are responsible for approving or rejecting authorization requests. The issuer also manages their cardholders' accounts and facilitates clearing and settlement to exchange funds between the cardholder and the processor.

Transaction Authorization

Each authorization request generates an authorization response that directs the processor or the merchant credit card account user on how to proceed with the payment. The response is usually a code that suggests the action that the retailer should take.

If the processor is available, the authorization request's response message will include a 2-digit response code. This code tells the acquirer and merchant credit card account user what action should be taken (approve, reject, refer to card issuer, pick up card, or valid).

Transaction Clearing

Processors and issuers perform clearing to exchange payment data. From the information provided during the clearing process, the Associations' systems calculate the amounts for settlement. Member banks and acquirers contracting with merchant credit card account users to accept cards are required to perform clearing to exchange payment data.

Settlement

Settlement is the process through which the money is actually exchanged. The funds are calculated as the net equivalent of the amount derived at the clearing. This money is exchanged every day between processors and issuers for the net amount of the cleared transactions. The Associations calculate in reconciliation currency the net positions of each processor and issuer that participate in the clearing process and facilitate the following two settlement functions:

• Exchanging advisements.
• Transferring money (when applicable).