According to the Consumer Financial Protection Bureau, “The credit card marketplace is among the largest, most diverse and most complex markets of any consumer financial product.” Often described as a “payments ecosystem,” it’s a complicated network of interconnected systems designed to ensure that when a customer dips a card or uses their mobile device at your restaurant, the funds will be there to pay the bill.

But that’s not all — the payments ecosystem makes sure sales are recorded in your point of sale system, a detailed record of the transaction is sent to you and your guest gets a receipt and that efforts are made to secure payment card data. And it’s all done in a fast and remarkably efficient way.

You don’t necessarily need to know all of the ins and outs of payments — after all, you’re trying to run a restaurant — but it’s important to understand the basics so you can better assess your costs and decide if you need to make changes in your operation.

The players 

Think about the separate systems that comprise your own establishment’s ecosystem — from staffing to inventory control. These subsystems work together to create an optimal dining experience for your customers. It’s the same with payments. Let’s take a look at the key players in this ecosystem:

Cardholder. The customer begins the payment process by presenting a card at your restaurant or purchasing online. Depending on the type of card, the customer may approve payment with a signature or PIN.

Merchant. Before you can receive a single card payment, you must establish an account with a merchant bank, purchase a card reader, contract with a processor and sign agreements with the card brands you will accept. Your merchant bank or processor can help you get started and provide advice.

Merchant or acquiring bank. Sometimes referred to as the acquirer because their purpose is to acquire authorizations from your customers’ banks, this is your financial institution that receives payment during the payment settlement process.

Issuing bank. VISA and Mastercard credit and debit cards are issued to consumers by financial institutions that partner with the card networks. The issuing bank authorizes payment, prepares monthly statements and acts as a representative for the customer in the case of a disputed charge.   

Card brands or card networks. The major card brands have their own networks and rules that govern the use of their cards. The networks validate each transaction, forward the authorization request to the issuing bank and send the issuing bank’s response to the merchant bank.

Processor. The processor facilitates payments through the physical devices in your establishment that encrypt the data for transmission to the card networks and issuing bank for authorization. Processors also send transaction data to the merchant bank for settlement.

The steps 

The payments process is divided into two basic parts: authorization and settlement. Both must happen in order for you to receive payment.


  1. Customer dips payment card in your terminal or card reader or initiates payment on their mobile device.
  2. Data from the card is sent to the acquirer/processor to the card network.
  3. Card network validates card, clears payment and sends authorization request to issuing bank.
  4. Issuing bank approves or declines the purchase and sends authorization back to merchant via the processor and card networks.
  5. Authorization arrives at your terminal. The transaction data at this point may be tokenized.
  6. You complete the sale if approved by providing a sales slip. The entire authorization process usually takes only a few seconds.


  1. Processor sends batched information to credit card networks for settlement.
  2. Credit card network sends approved transactions to issuing bank for payment.
  3. Issuing bank transfers funds (within two days) to card network.
  4. Card network pays your bank, and your account is credited.
  5. Issuing bank posts the transaction to customer’s account for payment.


As you might expect, there is a cost attached to the convenience of accepting payment cards no matter their form. These costs, known as the merchant discount or “interchange” rate, are subtracted from the funds that are deposited into your bank account. While no one likes to pay fees, they are cost of doing business in cashless world. Among the fees you can expect to pay:

Interchange fees. Interchange fees are set by the card networks and are assessed in two parts: a percentage to the issuing bank and a fixed transaction fee to the card network. Interchange rates vary based on a number of “interchange qualification” factors such as card present vs. not present, processing method used, card type and merchant’s business type. Interchange fees make up the largest part of the costs associated with accepting electronic payments and can be confusing.

Assessments. Card networks charge merchants a monthly assessment based on transactions and each time a card is swiped.

Processor markup. Processors charge a fixed fee each time you process a transaction. In addition, they may charge for setting up your system and monthly usage fees.

Merchant bank fees. Your bank charges a fee based on your sales volume and type of business.

Chargebacks. Customers have the right to dispute charges on their monthly statement. Issuing banks charge merchants a penalty for the dispute and allow the merchant to appeal. If the merchant loses or decides not to appeal, the issuing bank will “charge back” the full amount to the merchant.

This post is sponsored by Heartland, a Global Payments company that delivers fast, secure omnichannel payment processing and business solutions to more than 400,000 business locations nationwide. Product offerings include payments, payroll, point of sale, customer engagement and lending. Heartland is an endorsed partner of the Association.