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January 16, 2019

A Credit Card Processing Glossary

You might hear terms like “issuing banks” or “acquiring banks” or abbreviations like “ISO” that all sound foreign to you. This simple glossary defines the role of each player in a transaction. We will begin by defining your role in the process. 

The Merchant

The merchant is the business owner or establishment that accepts credit, debit, and prepaid cards. The business owner uses a POS (point-of-sale) system or credit card terminal to accept the form of payment presented by the customer. The merchants independently decide which type of credit cards they will accept and which credit card processor they will use.

What is an ISO?

ISOs are Independent Sales Organizations (such as Chosen Payments). An ISO is also known as a Credit Card Processor. The ISO manages one or more sales agents (also known as Merchant Account Executives) and typically sets merchant pricing. ISOs provide support for sales agents and, like the agents they employ or contract with, the ISO receives commission and residual income from each transaction processed.  

Sales Agents and Account Executives

Sales Agents are employed or contracted by ISOs to assist merchants in obtaining a merchant processing account. The agent’s income is often based on commissions and/or residual income determined by the rates a merchant is offered. Sales agents also help merchants obtain credit card payment processing equipment by determining their needs, making recommendations, and selling them the equipment.

The Acquiring Bank   

The acquiring bank works with ISOs and is responsible for settling all the money with the merchant and collecting all the fees paid by the merchant. The acquiring bank is also responsible for requesting authentication and authorization of the credit and debit card transactions as well as collecting interchange fees, assessments, and other network fees (transaction fees charged by the card networks). The acquiring bank is also responsible for contracting with a “sponsoring bank” which is the financial institution that underwrites the acquiring bank’s risk and represents the acquiring bank in various card network matters. Both the acquirer and the sponsoring bank receive income on every sales transaction.  

Card and Brand Networks  

The networks represent the credit, debit, and prepaid card brands. Examples include Visa, MasterCard, Discover, and American Express. The networks produce their own operating rules and regulations and provide infrastructure for interchange, clearing, and settlements. In addition, the networks monitor and produce guidelines for risk, provide statistical analysis, and develop new products and services.

Issuing or Sponsoring Bank 

The issuing bank is the bank that issues a credit or debit card. Examples include Chase, Bank of America, Wells Fargo, and Capital One. The issuer provides cards to consumers and issues authentication and authorization as to whether the card is valid based on the credit line and current status.

Cardholders  

In the credit card processing world, customers are called Cardholders. In the case of American Express, they are referred to as Cardmembers. Since cardholders are the basis for each transaction, they are very important players in how the credit card processing system works. Cardholders may use credit, debit, or prepaid cards to make a purchase.  

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