It's really quite simple. The customer
wants to make a purchase with a Merchant (M) who has entered
an agreement with a Merchant Bank (MB) to accept credit
cards. The Merchant Bank though actually contracts with
an Acquiring Processor (AP) to route the transaction.
The merchant's service contact however is not with the
Acquiring Processor directly or the Merchant Bank but
the Merchant Service Provider (MSP) who really is an Independent
Sales Organization (ISO). The ISO however does not want
to be called an ISO and prefers to be called a Non-Cash
Transaction Provider (NCTP). The NCTP also routes the
transaction data to the Acquiring Processor and may or
may not take the chargeback risk depending on what they
have worked out with the ISO, the Acquiring Processor
(AP) and the MSP (who can really be themselves) So...
the M has a problem and calls the ISO who calls the MSP
home office who checks with the AP. The AP calls the Issuing
Bank (they get most of the money) who blames the ISO for
the problem. The ISO blames the MP who blames the AP.
It all, of course, ends up being YOUR fault. Simple, huh?
There can be as many as six parties participating in every
credit card transaction.
The Issuing Bank - The issuing bank extends a credit
card account to a customer after verifying the applicant's
creditworthiness and "issues" the consumer a credit card
(bankcard). The merchant's payment will eventually come
from this bank. The Issuing Bank who gave (issued) the
consumer a credit card actually ends up with a good part
of the discount fee that the Merchant pays for the privilege
of accepting credit cards. See "Interchange Fee" in the
Glossary. This is why we get calls during our dinner hour
to sell us another consumer credit card.
The Consumer - The consumer makes the purchase
by presenting their credit card at the Merchant location.
They use a bankcard (credit card) from an issuing bank
and provide this information to the Merchant by the Merchant
swiping the card on a credit card terminal, or in the
case of a phone / mail order by the Merchant keying the
The Merchant - The Merchant offers goods
or services for sale. A Merchant needs both a Merchant
Account (which means they have been approved for the chargeback
risk) and a method of communicating the credit card information
with a credit card terminal, PC based software, or internet
based software.The days of taking batched credit card
slips to your bank are essentially over.
The Merchant Bank - The merchant bank provides
merchants with an online Merchant Account (to accept "card
present" transactions with a terminal or "card not present"
transactions). This bank may contract with an Acquiring
Processor to move the credit card transaction through
the payment process, or it may function in this capacity
itself. The Merchant Bank and the Acquiring Processor
may also contract with an Independent Sales Organization
(ISO) to find the Merchant in exchange for a part of the
ISO (Independent Service Organization) - An ISO
is a firm or organization which solicits offers to process
non-cash and credit card transactions, usually in exchange
for transaction fees or a percentage of sales.
The Acquiring Processor - The Acquiring Processor
routes the transaction through the electronic financial
networks for processing and settlement, delivering the
payment to the merchant's online account once it has been
obtained from the credit-card holder's account with the
(For a complete listing of all the terms relevant to the
Merchant Account Industry including internet terms go
to the Glossary of this Guide.)