How Does Debit Card Processing Works? What Is The Role of Merchants, Processors & Banks

Have you ever thought about what really happens behind the curtains when you make an online payment?

Whether you are a business owner who is just getting started in the world of eCommerce or you simply want to learn more about the process – debit card processing can be a challenging road to navigate, considering the byzantine terminology that is used in the industry and the complicated process involved in the payment gateways.

Even though it is not necessary to have in-depth and intimate knowledge of the inner-workings of your bankcard system in order to shortlist the best credit and debit card processing company, however, it is always a good idea to get a basic understanding of how credit/debit card processing actually works because of the various types of fees that are charged at different stages.

Knowing the core elements will help you choose the best card-processing solution. If you’re a business owner or a startup, then it is essential you are introduced to the bank card processing world, as it will elevate your business transactions through payment gateways.

Billions of transactions take place daily between merchants, processors, and banks. In just a matter of a few seconds, your card information is passed from a terminal to a processor and through the card network to your issuing bank for authority and approval. The issuing bank then sends confirmation through the card network back to your processor before it finally gets picked and the end of your terminal of payment gateway.

Leading Roles in a Credit and Debit Card Processing Transaction

Leading Roles in a Credit and Debit Card Processing Transaction

Here are a few terms you would want to understand to get started:


The person who owns the card, the credit/debit card processing is issued from an issuing bank.


Any kind of business that accepts card payments for their products and services from the cardholder.

Merchant banks

Banks that create and maintain merchant accounts. Merchant banks allow Business owners to accept the card for deposits as payment.

Payment processors

These companies process the debit and cred card transactions by connecting merchant banks with merchants and card networks to enable the purchase.

⦁ Issuing banks

These are banks, financial institutions, and credit unions that issue debit and credit cards to users.

Card associations

⦁ These include American Express, Mastercard, Visa, and discover. These companies have interchange rates with qualification guidelines that act as the official arbiter between the acquiring and issuing banks of payment gateways.

How The Card Processing System Works

Although all of this sounds too much, obtaining a legal authorization for transactions is only the first step. All approvals must be settled right before sales are deposited into your business’s bank account.

Credit card transaction is a systematic two-stage process that includes authorization and settlement. It is essential for the company because different fees are incurred at each stage, and any slight failure can result in additional costs and charges for the merchant.

Every business needs Best Ecommerce Payment solutions. Therefore, in this article, we will take you through details of the primary payment infrastructure and terms of credit card processing to explain to you how they work together to ensure smooth eCommerce transactions everywhere with your debit card processing.

How Card Processing Works: The Main Players

How Card Processing Works: The Main Players

The key players involved in settlement and authorization are the cardholder, the merchant bank, the processing bank, the acquiring bank, the issuing bank and the card associations, aka Visa and Mastercard cardholder.

Technically speaking, any business that sells its good or services is a merchant. However, in this instance, only merchants that accept card payments are our focus. Therefore, a merchant is any business that accepts card payments from cardholders in exchange for its goods and services. As a business owner, you are also a merchant.

Merchant’s Bank

A bank that is registered and an official partner of the card associations such as MasterCard and Visa is an acquiring bank that is often called a merchant bank as they manage the business accounts of the merchants or businesses, and allow them to accept debit and credit payments.

Merchant banks also provide businesses with software and devices to accept card payments and manage customer service along with other essential aspects involved in accepting card payments. These merchant banks even deposit funds from the card sales into the business owner’s account.

Surprisingly enough, many businesses don’t recognize their merchant bank as the leading provider of their merchant account. Merchant banks are playing an increasingly crucial role as the bankcard systems are evolving. Merchant banks sometimes enlist the assistance of a third party independent sales organization to conduct and evaluate the daily activities of their business accounts.

Payment processors enable merchants or business owners to receiver their credit and debit card processing payments online by connecting to an acquiring bank

Payment Processors

Payment processors enable merchants or business owners to receiver their credit and debit card processing payments online by connecting to an acquiring bank. The processors perform many other essential functions, such as ensuring the authenticity of the transactions, implementing anti-fraud measures to provide all the purchases initiated by sources that are valid.

Processes follow standard rules and regulations set by their registered credit card association.
These rules are regarding identity theft, fraud, and chargebacks. If any buyer has used a debit or a credit card to place their order with the merchant, the payment will transfer transaction details from gateway to the relevant card association.

Issuing Bank

As you’ve probably guessed, an issuing bank issues credit cards to consumers. The issuing bank is also a member of the card associations (Visa and MasterCard). Issuing banks pay to acquire banks for purchases that their cardholders make. It is then the cardholder’s responsibility to repay their issuing bank under the terms of their credit card agreement.

Card Association Companies (Visa and MasterCard)

MasterCard and Visa are not banks, and neither do they issue merchant accounts or credit cards. They are just custodians for their card brand. They also operate as the official governing body of financial institutions. They work together with MSPs and ISOs to support and facilitate electronic and credit card processing. Hence their title, “card associations.”

The primary responsibilities of the card associations are to monitor and govern the members of their associations, including qualification guidelines, interchange fees, and to act as an arbiter between acquiring banks to improve the card network, to maintain it, and to make a profit.

The Process of Debit Card Processing

To make it simpler for you, we have listed down the steps in debit card processing.

Step 1: The customer pays with their card

The customer makes a transaction from a merchant through their card.

Step 2: The transaction is authenticated

The point of sale system of the merchant captures the customer’s account information and transmits it to the acquirer.

Step 3: The transaction is transmitted

The merchant’s acquiring bank asks Visa or Mastercard to issue an authorization from the issuing bank.

Step 4: Authorization Request is submitted

Mastercard or Visa card submit the transaction request to the issuer for authorization.

Step 5: Authorization awaits the response

The issuing bank issues the transaction and channels the response back to the merchant or the business owner for the debit card processing.

Step 6: Merchant payment completed

The issuing bank routes the payment to the merchant’s acquirer, who deposits the payment into the merchant’s account. The issuing bank then routes the cashback to the merchant, who deposits the amount into the business owner’s account. Funding and settlement that used to take days and weeks now happen in a matter of seconds, helping your business generate money quicker than ever.

If you want to learn more about how credit and debit card processing occurs, contact one of our payments professionals and credit card experts. We’re more than happy to answer your queries. Empirepaytech has the expertise and remarkable experience in offering the best online credit card merchant services making it your best eCommerce payment solutions provider. Reach out to us; we’ll love to help you out!

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