Quick answer
When you pay by card, the shop's payment provider (the acquirer) asks your bank (the issuer) through a card network to approve the purchase. Approval takes seconds, but the money is cleared and settled later, and the merchant pays fees that include interchange to your bank[2].
Key points
- Four parties take part in most card payments: you, the merchant, the merchant's acquirer and your card issuer, connected by a card network.
- Authorisation (the 'approved' message) and settlement (the money actually moving) are separate steps that happen at different times.
- The merchant, not you, normally pays the processing fees; part of them is the interchange fee paid to your bank.
- Some regions cap interchange: the EU caps consumer debit at 0.2% and credit at 0.3% of the transaction value.
- Your phone wallet usually sends a token instead of your real card number, which limits the damage if data leaks.
On this page
#Who is involved when you pay by card?
Most card payments run on what the industry calls the four-party model. You (the cardholder) hold a card from your bank, called the issuer. The shop (the merchant) has a contract with a payment company called the acquirer, which accepts card payments on its behalf. A card network such as Visa or Mastercard connects acquirers and issuers and sets the rules everyone follows. See our glossary entries for acquirer and interchange for short definitions.
| Party | Who it is | What it does |
|---|---|---|
| Cardholder | You | Starts the payment by tapping, inserting or typing card details |
| Merchant | The shop or website | Asks for payment and ships the goods |
| Acquirer | The merchant's payment provider | Sends the request into the card network and pays the merchant |
| Issuer | Your bank or card company | Approves or declines, then takes the money from your account or credit line |
The card network sits in the middle, routing messages and settling balances between acquirers and issuers.
#What happens in the seconds after you tap?
The approval you see at the till is called authorisation. The terminal sends the card data and amount to the acquirer, the acquirer passes it through the card network, and the issuer checks whether the card is valid, whether there is enough money or credit, and whether the payment looks like fraud. The answer travels back the same way, usually in a couple of seconds.
The authorisation message path
- Card / phone — you tap or insert
- Merchant — terminal or checkout
- Acquirer — merchant's provider
- Card network — routes the request
- Issuer — your bank says yes/no
When you pay with a phone wallet, the device usually sends a payment token instead of your card number. EMVCo, the body that manages the EMV chip and token standards, describes tokenisation as replacing the primary account number with a unique alternative value[1]. If a merchant's systems are breached, the token is far less useful to a criminal than the real number. Our guide to digital wallets goes deeper.
#When does the money actually move?
Approval does not move money. Later, usually in a daily batch, the merchant's acquirer submits the approved transactions for clearing, which means exchanging the final details so everyone agrees what is owed. Then comes settlement: the issuer pays the network, and the network pays the acquirer, which pays the merchant after deducting its fees. That is why a refund or a pending charge can take days to appear correctly in your account.
The three stages of a card payment
Authorisation
The issuer approves or declines in seconds and places a hold on the funds or credit line.
Clearing
The merchant's acquirer submits the batch of approved payments and the parties confirm the final amounts.
Settlement
Money moves from the issuer, through the network, to the acquirer and finally to the merchant's bank account.
#Who pays the fees on a card payment?
In most countries the merchant pays, not the cardholder. The acquirer charges the merchant a fee (often called the merchant service charge). Inside that fee sits the interchange fee, which the acquirer passes to the issuer, plus network fees and the acquirer's own margin. Lawmakers in some regions limit interchange. In the European Union, the Interchange Fee Regulation caps interchange on consumer debit cards at 0.2% and on consumer credit cards at 0.3% of the transaction value[2].
In the United States, Regulation II limits debit card interchange for large issuers to 21 cents plus 5 basis points (0.05%) of the transaction value[3], with a separate fraud-prevention adjustment described by the Federal Reserve[4]. Credit card interchange in the US is not capped by that rule. For a deeper look at how these fees are set, read interchange fees explained.
Worked example
Worked example: the interchange on a 50-unit purchase
Using only the caps above (real fees vary and also include network and acquirer charges), here is the maximum interchange the issuer can receive on a purchase of 50 in each market. Figures were computed with code, not by hand.
- EU consumer debit card, €50 × 0.2%
- €0.10
- EU consumer credit card, €50 × 0.3%
- €0.15
- US regulated debit card, $0.21 + ($50 × 0.05%)
- $0.235 (before any fraud-prevention adjustment)
#What can go wrong, and how are disputes handled?
If a charge is wrong, fraudulent or the goods never arrive, the issuer can reverse it through a chargeback, which pulls the money back from the merchant via the acquirer. Consumer laws add deadlines. In the US, for example, the Consumer Financial Protection Bureau explains that you should dispute a credit card billing error within 60 calendar days after the charge appeared on your statement, and the card company then has 30 days to acknowledge your dispute[5]. The glossary entry on chargebacks explains the merchant's side.
Common beginner mistakes about card payments
Thinking 'approved' means the money has moved
Approval only reserves funds. Clearing and settlement happen later, which is why refunds and pending charges take time.
Assuming the shop sees your card number on a phone payment
Wallets usually pass a token, not your real card number.
Believing the card network is your bank
Visa or Mastercard route the payment, but your issuer approves it, holds your account and handles your dispute.
Missing the dispute deadline
Consumer protections have time limits; raise a problem with your issuer as soon as you see it.
#How is paying by card different from paying by bank transfer?
A card payment is a pull: the merchant asks to take money and your issuer agrees. A bank transfer is a push: you instruct your own bank to send money. That difference matters for refunds and fraud protection. Instant payment systems move money in seconds without a card network in the middle, which you can explore in instant payments explained and the comparison of ACH, wire and instant payments.
The bottom line
A card payment is two journeys: a message journey that ends in an instant approval, and a money journey that settles later. Four parties and a network share the work, and the merchant pays for it through fees that include interchange. Knowing the difference between authorisation and settlement explains most of the confusing things you see on a statement.
Frequently asked questions
Do I pay a fee when I use my debit card in a shop?
Usually not directly. The merchant pays the processing fees, though some merchants add a surcharge where the law allows it.
Why does a refund take longer than a payment?
A refund is a new transaction that has to be cleared and settled back through the acquirer, network and issuer, so it can take several working days to show.
Is a card network the same as a bank?
No. The network routes messages and sets rules; your bank or card company is the issuer that approves the payment and holds your account.
Sources
- EMV Payment Tokenisation — EMVCo, 2025 Primary
- Antitrust: Regulation on Interchange Fees (fact sheet MEMO/16/2162) — European Commission, 2016 Primary
- 12 CFR 235.3 — Reasonable and proportional interchange transaction fees — eCFR (US Code of Federal Regulations), 2025 Primary
- Regulation II (Debit Card Interchange Fees and Routing) — Board of Governors of the Federal Reserve System, 2025 Primary
- How do I dispute a charge on my credit card bill? — Consumer Financial Protection Bureau, 2024 Primary
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