The use of cash continues to decline with card payments and innovations within the payments space providing consumers and businesses more convenience and visibility over spending. According to UK Finance for Office of National Statistics (ONS) referenced by EY, card payments have grown to become the main payment method in the UK economy for consumer spending, accounting for 57% of payments physically and online.
This shift is further accentuated by the surge in contactless payments, which saw 1.59 billion transactions in March 2024 alone, marking a 5.9% increase from the previous year. The integration of mobile payment technologies, such as Apple Pay and Google Pay, has further digitised traditional card transactions, offering increased convenience and accessibility. The evolving payment ecosystem presents a unique opportunity for financial and non-financial businesses to incorporate card products into their offering, catering to the modern consumer's preference for seamless and versatile payment options.
In this blog, we’ll explore the journey of a card payment, the parties involved that make it happen, and we’ll dive deeper into the role of Edenred Payment Solutions as a card issuer and processor.
Who are the main parties involved in a card transaction?
In a card payment journey, several key parties work together to ensure a seamless transaction process. Let’s take a closer look at the role they play:
- Cardholder: This is the person making the purchase, either at a physical store or online.
- Merchant: The business selling goods or services through physical or digital channels.
- Payment gateway: It’s the payment facility that enables the merchant to accept the payments, physically or virtually.
- Acquirer processor: The entity that connects the merchant with the card schemes to accept card payments and ensures the merchant receives the funds due.
- Acquiring bank/merchant bank: Holds the account for the merchant.
- Card schemes: These transmit the transaction details between the acquiring processor and the issuer processor. They set the rules and processes for card payments, while providing the necessary network infrastructure, to ensure that cardholders can use their cards across multiple merchants by maintaining interoperable standards, rules, and certifications.
- Issuer processor: It’s the entity that handles the transaction's authorisation and settlement with the card scheme, managing risk and fraud, authorising the transaction against the account balance, and dealing with chargebacks and disputes.
- Issuer/issuing PSP: It issues the cards (debit, prepaid, etc.) to customers on behalf of major card schemes, like Mastercard and Visa.
- Issuing bank: The entity responsible for safeguarding cardholder funds
How do card payments work?
To understand how a card payment works let's follow its journey.
The cardholder taps the card on the payment terminal (if purchasing in store) or enters the card details using a payment gateway (if buying online). This action initiates the payment process.
An authorisation request is sent to the acquirer processor. The acquirer processor forwards this request to the cardholder’s issuer processor, via the card scheme.
The issuer processor performs several checks (more on this later) to ensure the transaction meets certain criteria and is valid. Once these checks are completed, the issuer processor sends an authorisation decision - approved or declined - back through the card scheme to the acquirer processor, and finally to the payment merchant.
The payment is approved and the whole process, although complex and multi-layered happened in just a few seconds, showing the efficient nature of card payments.
How does a card payment get processed?
The processing of a card payment involves several stages to ensure that transactions are authorised, cleared, and settled smoothly while maintaining security. As an issuer processor, we’re responsible for authorising or declining transactions based on multiple checks, performing cardholder authentication for e-commerce transactions, and managing fraud.
Here’s a detailed look at how the full process works:
Authorisation
When the cardholder taps the card, the transaction kicks off with an authorisation request. This request is sent to our platform, and we check if the cardholder’s account has sufficient funds. This real-time authorisation ensures that the purchase is approved swiftly and without hassle. For online purchases, additional cardholder authentication might be required.
Through our Delegated authorisation feature, we can provide clients with even more flexibility and control enabling them to take part in the authorisation process, so they can approve or decline transactions based on their specific criteria in real-time.
Clearing
During clearing, the acquirer processor sends files to our platform containing details of all the transactions that happened during the day in a batch. This information allows us to calculate how much money needs to be settled with the acquirer via the card scheme.
In some cases, for offline transactions, such as those made during a flight, the issuer processor may receive a clearing file, but no authorisation request.
Settlement
The settlement phase is the final step in the payment process. Here, the actual movement of funds occurs. The issuer processor debits the funds from the cardholder’s account and credits them to the merchant bank account via the acquirer processor. The settlement is managed through the card scheme, ensuring that the merchant receives the funds.
Card authentication
For some online transactions, there are additional cardholder authentication steps. Using the 3DS (Three-Domain Secure) protocol, the cardholder will receive an in-app notification, like the ones sent by mobile banking apps, prompting them to authenticate the transaction through fingerprint or FaceID. This protocol enhances security and is required to comply with Strong Customer Authentication (SCA) regulations. We issue cards that support this protocol, and provide functional APIs that communicate between the mobile banking apps and our platform facilitating secure 3DS authentication.
Monitoring fraud
With 2.7 million card fraud loss reports filed annually in the UK, robust measures are necessary to protect card payments. As a regulated institution, we deploy best-in-class fraud detection tools to monitor and mitigate suspicious transactions. These tools work according to rules, which ensure we can identify card payments that look unusual for further investigations. These rules analyse different attributes such as value, volume, velocity, geographies, and currencies. We also utilise the Mastercard network risk scoring feature, named Decision Intelligence, as an extra layer of security.
All of these stages, which are each meticulously handled, ensure that card transactions are not only smooth and efficient but also secure for all parties involved.
Working with Edenred Payment Solutions
Partnering with an established and reliable issuer processor, like Edenred Payment Solutions, brings a range of benefits that enhance your operational efficiency and cardholder satisfaction.
If you’re an unregulated company, we can orchestrate your card program, and safeguard funds with our sponsor banks, enabling you to issue cards through our Agent model. Alternatively, if you’re a regulated entity, we can provide our processing technology and expertise, whilst you issue and manage cards directly with the card scheme. Regardless of your licensing standpoint, we offer flexible solutions that help you stay in control of your programs and build solutions customised for your business.
Speed to market is crucial in today’s fast-paced business environment. Depending on projects, we can onboard new customers in just a few days, meaning you can launch new initiatives quickly and efficiently.
As a card issuer and processor, we reduce the number of commercial, operational, and legal relationships you need to manage, so you can focus on innovation and enhancing the customer experience.
Our dedicated team monitors, analyses, and filters card transactions, ensuring you only pay scheme fees based on actual usage. This careful management translates into substantial cost savings for you over time.
By working with Edenred Payment Solutions, you can ensure your card transaction processing system provides a secure, efficient, and compliant cardholder experience. Our expertise and robust processing infrastructure make us an ideal partner for businesses looking to optimise their payment processes.
In conclusion
Card payments are fast becoming the default method for consumer and corporate spending. Understanding the different phases of these transactions, and the role of all parties involved, highlights the complexity and efficiency of card payment systems. Partnering with a reliable card issuer and processor like Edenred Payment Solutions not only streamlines these processes, but also offers numerous benefits, including faster time to market, increased operational efficiency, and cost optimisation.
Build an efficient cardholder experience with a trusted partner
Leverage our tech infrastructure and payment expertise to build a secure, efficient, and compliant experience for cardholders. Talk to our experts to discover how we can customise the card processing system to suit your needs.
