17/08/2021

How the card payment system works

By Mariana Almeida Marques

For customers, paying for goods is as easy as swiping their card in a terminal or entering their bank details online. Card payments, however, are much more complex than that. We have touched on how payment processing works before so, in this article, we will focus on card payments.

What is a card payment system?

A card payment system is, essentially, technology that supports card payments. An online payment system is comprised of various technologies that enable merchants to take payments online. Similarly, a card payment system allows merchants to take card payments from their customers. Without one, merchants simply wouldn’t be able to accept debit or credit card payments. Note that the term “card payment system” isn’t particularly popular, mainly because most payment systems support card payments already.

Who is involved?

Much like in a bank-to-bank transfer, both Issuing and Acquiring banks are involved. The Issuing bank is the customer’s bank, and the Acquiring bank is the merchant’s bank. Payment processing starts with the Issuer and finishes with the Acquirer, who settles the transaction. However, bank-to-bank transfers are processed by the national clearing house, whilst card payments are not.

In card payments, the payment is processed via the card network of the customer’s card. Each card has a network or association- you may be familiar with Visa, MasterCard or American Express. Aside from the banks and card networks, there is a payment gateway and payment processor. Some companies may also integrate additional tools to reinforce, for instance, stronger customer authentication.

card payment systems allow merchants to take credit card payments.

Authentication

Authentication is the first step of payment processing. When a customer swipes or inserts their card, their bank details and information are collected by a payment gateway and transmitted to the payment processor. The Issuing bank and processor are responsible for verifying the customer’s details, ensuring that their identity is legitimate and that there are enough funds in their bank account to cover the purchase. The authentication process therefore represents the verification of customers’ details to ensure these are authentic.

Authorisation

If all details are correct, the payment is authorised and can be processed. The authorisation process happens in real-time and it usually only takes a few seconds. Customers will get notifications along the way, informing them of their transaction’s status. If a customer doesn’t have enough funds to cover the purchase or inserts the wrong digits, the payment can’t be authorised and won’t go through.

Settlement

When the transaction is authorised, the payment is processed via the card network. The payment processor is also present along the way and facilitates the movement of funds from the Issuer to the Acquirer. When the money sum reaches the acquirer, this bank or PSP (as PSP can also offer merchant’s accounts) is responsible for clearing and settling the payment, making the funds available to the merchant.
SEPA payment system in Europe

Why use it?

Any business that wants to take card payments will have to connect to providers or payment systems that support this type of payments. Whilst there has been a steep increase in the usage of mobile wallets to make purchases, card is still amongst some of the most popular payment types. Therefore, whether your business is mainly digital or physical, being able to accept card payments is absolutely detrimental for attracting customers.

About Imburse

Imburse offers connectivity to the global payments ecosystem, so your company can effectively enhance its payment system. By doing a single connection to Imburse, you will have access to all payment providers, technologies and tools you want and can integrate them into your current IT system in a matter of weeks.

We make it not only extremely fast to connect to payment technologies, but also an easy, stress-free and cost-efficient process. The Imburse platform gives you the freedom you need to adapt to customers’ changing needs and the fast pace of this market, ensuring your own company’s growth and customer satisfaction at all times.

Author

Mariana Marques

Mariana is a content writer at Imburse, specialising in Finance and Technology topics.

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