2.2 Roles involved in payment card processing

Several parties, also referred to as roles, are involved in the processing of a payment card transaction ”namely, the issuer, the cardholder, the merchant, the acquirer, the card association, and the settlement bank. An overview of the payment system, including all these roles, is presented in Figure 2.3.

Figure 2.3: Roles involved in payment card processing.

The issuer is a licensed financial institution or its agent that issues the payment card to the cardholder and is responsible for the provision of responses to authorization requests . The issuer remains unchanged during a transaction. The financial institution can be a bank, also referred to as the issuing bank, that is member of a card association and adopts a payment card product promoted by the card association. The issuer keeps the accounts of cardholders to which they charge bills or directly debit the amounts involved in the financial transactions performed by the cardholders. The issuer guarantees payment for authorized transactions, processing the payment card in accordance with the payment card product regulations and local legislation. The issuer supports the clearing and settlement functions between the cardholder and the acquirer. The issuer host is the computing system that accesses the cardholder accounts database and represents the issuer during the authorization, clearing, and settlement.

The cardholder is a customer of the issuer that uses a payment card in a B2C payment transaction. The cardholder is associated with the primary account number (PAN). The PAN gives enough information for identifying the account of the cardholder to which bills are charged or from which amounts are directly debited and the financial institution that keeps this account.

The card acceptor is the party that accepts a payment card at the point of service, formats the data of the transaction in a payment message, and forwards the payment message to the acquirer. The card acceptor can be a merchant selling goods or services or a branch bank disbursing cash for its customers. A supermarket selling groceries, a vending machine for beverages, a travel agent, or a small caf can play the role of the merchant.

The acquirer is a licensed financial institution or its agent that acquires the payment message relating to a transaction from the card acceptor and feeds that data into an interchange system. The acquirer remains unchanged during a transaction. The financial institution can be a bank, also referred to as the acquiring bank, that is a member of a card association and adopts the payment card product designed and operated by that card association. From this perspective, the acquirer intermediates between the card acceptor and the card association, providing the card acceptor with operational support and needed infrastructure for card authorization, clearing, and settlement through the interchange system. The acquirer keeps the accounts of merchants , to whom they credit the amounts involved in the financial transactions performed at their point of service. The acquirer host is the computing system that accesses the merchant accounts database and represents the acquirer during the authorization, clearing, and settlement processes.

The card association is the owner of the payment card product. The card association's members are issuers and acquirers, providing the direct retail financial service for cardholders and merchants. The card association is responsible for running the interchange system that exchanges transaction data between acquirers and issuers during authorization, clearing, and settlement. The interchange system is implemented as a payment network with processor nodes connected to issuer hosts and acquirer hosts .

The settlement institution is a financial institution that holds the accounts of issuers and acquirers that are members of the card association. The settlement institution can be a bank that is subcontracted by the card association. This settlement bank acts on the transaction information provided by the issuers, acquirers, and the card association by transferring the appropriate funds between their accounts.