How Do Card Machines Work?

Bank cards are ever growing as a method of payment in the UK and it is predicted that by 2026, 60 million card transactions will take place in the UK daily. As fewer and fewer people carry physical cash, cards become more and more responsible for all of the money moving around the economy. But how does it all work? The process of authorising and finalising a card transaction involves a number of different people and companies. Here is a breakdown of the 4 main players in each card transaction.

Card holder

With debit card transactions in excess of £40.8 billion in the UK and credit cards at £16.77 billion, most people have authorised bank cards and are ‘cardholders.’ A cardholder is a person who has obtained a credit or debit bank card. This bank card is then used to make transactions for products or services.

Merchant & acquiring bank

Quite simply, an acquiring bank, otherwise known as a merchant’s bank, is a bank that is registered with a card association (see below). These are typically your high street banks. They are dubbed ‘merchant banks’ because they are contracted with persons or companies to create and maintain accounts which enable that business to accept card payments, whether debit or credit. The acquiring bank will provide the merchant with a card machine and the relevant equipment and software required to allow those transactions to happen. With regards to credit card transactions, the acquiring bank deposits funds from those sales to a merchant’s bank.

Issuing bank

This is the ‘cardholder bank,’ which authorises people with credit cards. These issuing banks pay the acquiring banks for transactions that the cardholders make. The credit card holder is then responsible for repaying their issuing bank under the T&Cs of their credit card agreement (e.g. minimum monthly direct debit etc).

Card associations (Visa & Mastercard)

Visa and Mastercard are names that you see all the time on the majority of credit and debit cards across the country. However, these companies aren’t banks, nor do they supply merchant accounts or credit cards. Instead, the role of these card associations is to govern transactions made by their corresponding card brands and help clear the transactions made.

Their primary role is to oversee the companies they are partnered with and enforce contract details such as fees and necessary qualifications. In addition to this, they support the processing of electronic payments by acting as governing bodies of financial institutions, ISOs and MSPs.

Once broken down, the workings behind a card machine are actually quite simple and every process has its own responsibilities to ensure that the system works. Accepting card payments in an increasingly cashless UK is only ever going to benefit your company.

Take a look at our other payment solutions for small and mid-size businesses for more helpful tips.