The Payment Process Explained

The Basics

Whenever a card is used to pay for a product, or service it invokes the payments cycle. The payments cycle in the UK has a variety of different models, although the most common is the four box model. This model includes the following;

Cardholder – The customer who wants to make the £100.00 purchase

Seller – The business that wants to provide the product or service to the customer for £100.00

Acquiring bank – The processor which authorises the cardholders £100.00 payment for the Seller

Issuing bank – The bank who issued the card to the cardholder and holds the initial £100.00

Note: there are other elements that can be included in this model such as payment service providers, the card schemes and till providers. Ultimately the four box model is the most basic view of this.

The Process

Note: Additional stage

Throughout this process the transaction is sent to the relevant card scheme (Visa/MasterCard etc) to be approved, this also comes at a cost which is called a Scheme Fee.

The Costs

As a business you will need to have a relationship with an acquirer who process the card payments for you. Acquirers have two pricing models that a business can opt for:

1. Blended: You pay a flat fee for each card type, this blends the processing, scheme and interchange fee into one charge. The method lacks transparency and can lead to many customers being overcharged, especially if they are unaware of the cost of the component parts.

2. Interchange +: You are charged a separate fee for each card type, this splits the processing, scheme and interchange fee into separate charges. This method is far more transparent, but can lead to complex statements, with each charging line calculated individually.