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How Interchange Works

March 4, 2013

When you use a credit card to make a purchase, a large network of companies comes together to make it all happen. The credit card interchange process, or the system by which credit card payments are processed, consists of the the credit cardholder, the merchant, the acquirer bank, the credit card network and the issuer. All of these play important roles in the process. If a payment processor is the third-party holder of the merchant account for the merchant, the payment processor will also have a role.

Key players

  • The card holder is the consumer who pays the merchant for goods or services with a credit card.
  • The merchant is the business that sells the goods or services to the cardholder.
  • The acquirer is the bank or credit card company that will process the credit card payments for the merchant through a merchant account.
  • The credit card network or association acts as a gateway between the bank and the merchant.

If a business utilizes a payment-processing provider rather than a bank, that payment processor will act as a gateway between the merchant and the bank or credit card company. is one example of a company that processes online credit card payments this way.
How it all comes together

When the cardholder presents a credit card to the merchant, the transaction and credit card are both verified to be sure they are valid. This is done by swiping the card through a terminal or by entering the card number over the phone or into a computer. The payment is usually authorized fairly quickly.

Once the payment has been authorized, the transaction gets sent to what is called a batch — a storage system for credit card transactions. They are held in the batch until the merchant sends them to the acquirer to request payment. If a credit card processing provider is used, that provider is the one that sends the batch to the acquirer.

That batch then gets sent to the credit card issuer so that it can pay the funds to the acquirer. Once the issuer pays the acquirer, the acquirer then pays the merchant.

by Lyn Lomasi

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