How card payments work: authorisation to settlement

A card payment involves four parties beyond the shopper and the shop: the issuer (the cardholder's bank), the acquirer (the merchant's payment provider), the card scheme that sets the rules, and the processors that carry the messages between them. The issuer approves or declines the purchase within seconds at authorisation, and the money follows later through clearing and settlement, with interchange paid to the issuer along the way.

This guide follows one transaction from tap or click to payout, then covers fees, the EU interchange caps and chargebacks.

The parties in a card payment

Sources: Regulation (EU) 2015/751, checked 3 November 2026. For how gateways, PSPs and acquirers divide the work, see payment gateway vs PSP vs acquirer.

Four-party and three-party schemes

Most card payments run through a four-party scheme. The Interchange Fee Regulation describes this as a scheme in which the transaction goes from the payer's issuer to the payee's acquirer, with the scheme in the middle. Visa and Mastercard work this way: banks and payment institutions issue cards and acquire merchants under the scheme's rules.

In a three-party scheme, the scheme itself issues the cards and acquires the merchants. The regulation adds an important rule: if a three-party scheme licenses other providers to issue or acquire, it is treated as a four-party scheme for the purposes of the law.

The four stages of a card transaction

Timings vary by scheme, acquirer and contract. The merchant's contract with its acquirer sets when funds arrive.

1. Authorisation

The shopper taps a card, inserts it, or types the details online. The merchant's terminal or checkout sends the request to its gateway or processor, which passes it to the acquirer. The acquirer routes it through the card scheme's network to the issuer. The issuer checks that the card is valid, that there is enough balance or credit, and whether the payment looks like fraud. It sends back an approval or a decline, which travels the same path in reverse.

For online payments in the EU and EEA, strong customer authentication (SCA) usually happens at this point. PSD2 defines SCA in Article 4(30) as authentication based on two or more independent elements from three categories: something the user knows, something the user has, and something the user is. The European Commission states that PSD2 and the regulatory technical standards on SCA (Commission Delegated Regulation (EU) 2018/389, adopted 27 November 2017) apply from 14 September 2019. The EBA's June 2018 opinion makes clear that the issuer (as the account-servicing provider) applies SCA and decides whether an exemption can be used.

An approved authorisation reserves the funds on the cardholder's account. It does not yet move them.

2. Clearing

After the sale, the acquirer sends the final transaction record through the scheme. This may differ from the authorised amount, for example after a tip or a partial shipment. The scheme matches the records between acquirers and issuers and works out what each owes, including interchange and scheme fees.

3. Settlement

Settlement is when money actually changes hands. The issuer pays out the net value of its cardholders' purchases, the acquirer receives it, and the acquirer then credits the merchant, minus its fees. The issuer collects the money from the cardholder later: straight away from the account for a debit card, or through the monthly statement for a credit card.

4. Chargebacks and disputes

A chargeback is a reversal started by the cardholder through their issuer, for reasons such as fraud, goods not received or a processing error. The issuer raises the dispute under the card scheme's rules. The acquirer passes it to the merchant, which can accept it or send evidence to defend the sale. Each scheme publishes its own reason codes, deadlines and stages, so the exact process depends on the card brand. For the merchant, the acquirer is the point of contact in every dispute. Chargeback rules are a scheme matter rather than a matter of EU payments law, so check the specific scheme rules your acquirer applies.

Where the fees go

The merchant pays a merchant service charge to its acquirer. That charge covers three main parts:

Pricing can be "blended" (one rate for all cards) or "interchange plus" (interchange and scheme fees shown separately, plus the acquirer's margin). Our profiles of Adyen, Stripe and Worldpay show what each publishes about its pricing, and our Worldpay vs Adyen comparison sets them side by side.

Interchange caps in the EU and UK

Regulation (EU) 2015/751 of 29 April 2015, often called the Interchange Fee Regulation, defines the interchange fee as a fee paid for each transaction, directly or indirectly, between the issuer and the acquirer. It sets these limits:

Source: Regulation (EU) 2015/751 as adopted, checked 3 November 2026.

Some further details from the text:

• Domestic debit options. Member states may set a lower percentage cap for domestic debit transactions, or allow a flat fee of up to EUR 0.05 per transaction, combined with the 0.2% cap, as long as each scheme's domestic debit interchange stays within 0.2% of its annual transaction value. Until 9 December 2020, they could also allow a weighted average approach for domestic debit.
• Lower credit caps. Member states may set a cap below 0.3% for domestic credit card transactions.
• No workarounds. Article 5 counts any payment with the same object or effect as interchange, including "net compensation" from schemes to issuers, towards the cap.

The UK kept a version of the regulation after leaving the EU. The UK text, as published on legislation.gov.uk, applies the rules to card transactions where both the payer's and the payee's providers are in the United Kingdom, and gives powers to HM Treasury and the Payment Systems Regulator. It has been amended since, including by a 2025 statutory instrument (S.I. 2025/82).

UK oversight of card acquiring

The Payment Systems Regulator (PSR) reviewed how card-acquiring services are supplied to UK businesses. Key dates, as listed on the PSR's review page (last updated May 2024):

The remedies include summary boxes, online quotation tools and trigger messages, aimed at helping businesses compare acquirers and switch.

Cards compared with account-to-account payments

Card payments are not the only route. An open banking payment moves money straight from the payer's bank account to the merchant's, with no issuer-acquirer chain and no interchange. For the trade-offs, see open banking payments explained, and for wallets and local schemes see alternative payment methods explained. More in the cards hub.

Frequently asked questions

How does a card payment work step by step?

A card payment goes through authorisation, clearing and settlement, with disputes as a possible fourth stage. At authorisation the issuer approves or declines the purchase within seconds; clearing then exchanges the final transaction details, and settlement is when money actually changes hands. The merchant's contract with its acquirer sets when funds arrive.

What is the difference between an issuer and an acquirer?

The issuer is the cardholder's bank: it provides the card and holds the payer's account or credit line. The acquirer contracts with the merchant to accept and process card transactions and pay the funds out. For how gateways, PSPs and acquirers divide the work, see payment gateway vs PSP vs acquirer.

What is the interchange fee cap in the EU?

Regulation (EU) 2015/751 caps interchange at 0.2% of transaction value for consumer debit cards and 0.3% for consumer credit cards. Commercial cards, cash withdrawals at ATMs or counters and cards from three-party schemes are not capped by Chapter II. Member states may set lower caps for domestic debit and domestic credit card transactions.

What fees does a merchant pay on a card payment?

The merchant pays a merchant service charge to its acquirer. It covers the interchange fee paid to the issuer, scheme fees paid to the card scheme, and the acquirer's margin and other charges. Pricing can be blended, with one rate for all cards, or interchange plus, where interchange and scheme fees are shown separately.

How does a chargeback work?

A chargeback is a reversal started by the cardholder through their issuer, for reasons such as fraud, goods not received or a processing error. The issuer raises the dispute under the card scheme's rules, and the acquirer passes it to the merchant, which can accept it or send evidence to defend the sale. Each scheme publishes its own reason codes, deadlines and stages.

Does card authorisation move the money?

No. An approved authorisation reserves the funds on the cardholder's account but does not yet move them. The money changes hands later, at settlement.

Key terms

• Acquirer: the provider that signs the merchant, accepts its card transactions and pays it.
• Authorisation: the issuer's real-time approval or decline of a transaction.
• Chargeback: a reversal raised by the issuer on the cardholder's behalf under scheme rules.
• Clearing: the exchange of final transaction details and calculation of amounts owed.
• Interchange fee: the per-transaction fee passing between acquirer and issuer.
• Issuer: the provider that gives the payer the card.
• Scheme fee: a fee charged by the card scheme to its participants.
• Settlement: the actual transfer of funds between issuer, acquirer and merchant.
• Strong customer authentication (SCA): authentication using two or more independent elements (knowledge, possession, inherence), as defined in PSD2.