How do card payments work?

Chip and PIN Machines (also known as card machines, PDQ machines and card readers) have been a popular method of taking card payments for more than 10 years now. This secure and trusted system of card payment processing is where every transaction begins.

Despite the fact that there were over 15 billion credit and debit card transactions in the UK last year, many people still ask the question: how do chip and PIN payments actually work? Well, wonder no more as we explain the process below:

Check out our article on how Contactless payments work for a breakdown of how the technology enables faster card payments.

The Authorisation Process


Authorising a payment takes just seconds to complete, but unknown to most consumers and cardholders, there are several important steps involved in making sure your customer’s card payment is confirmed quickly and securely.

Payment authorisation begins as soon as a customer inserts their credit or debit card into the card terminal and enters their PIN number. The request travels from the Chip and PIN Machine through the telephone, dial up or broadband lines (if Countertop or Portable) or along the mobile network (if Mobile).

1. Acquirer

Acquirers, also called acquiring banks or merchant banks, act as the banking partner for the merchant. Some of these include First Data Merchant Solutions and Global Payments. The acquirer creates and maintains a Merchant Account that allow the business to accept credit and debit cards.

It’s worth noting that these should not be confused with the business’ bank account held by high street or commercial banks — a Merchant Account receives transaction details and payments from the customer’s bank before paying it into the merchant’s commercial bank account.

Once the acquirer has received the authorisation request from the Chip & PIN Machine, it will be forwarded onto the card scheme provider.

2. Card scheme provider

The transaction then arrives at one of the big card schemes like VISA or MasterCard for approval. Once scheme provider verifies that the card details are correct, they will pass the authorisation request onto the customer’s bank where the cash is kept.

3. Customer’s bank

The customer’s bank (also called the cardholder’s bank or issuing bank) have supplied the customer with their specific credit or debit card. HSBC, Barclays and Santender are the names of some of these. When the request arrives here, the bank checks the customer details and, most importantly ensures they have enough cleared funds in their account to make payment.

From here the transaction does a u-turn and heads back towards the business to confirm the payment can go ahead.

4. Card scheme provider — round 2

The customer’s bank contacts the card scheme provider with the confirmation of the customer’s details and cash availability. The scheme provider then passes this information back to acquirer.

It’s easy to think that the card companies are just simple middlemen in all this, but they process millions of global transactions every single second and make sure the transaction is processed safely and securely.

5. Acquirer — round 2

The acquirer can now receive payment from the customer bank account that’s linked with the payment card. It’s the cardholder’s responsibility to repay their bank under the specific terms of their credit or debit card agreement.

All of the above happens in around 2-3 seconds, showing the staggering pace at which technology has enabled card payments to become the customer’s preferred payment method.
Transaction complete

With the acquiring bank satisfied the customer is genuine and able to pay for their purchases, confirmation is sent to the Chip & PIN Machine. The paying customer will see an approval message appear on the screen and remove their card from the terminal.

The receipt is then printed with proof of the accepted payment. Chip & PIN Machines typically have a receipt printer attached and will dispatch a merchant copy of the receipt as well as a customer copy.

Settling up

While authorisation happens at lightning speed and to guarantee a swift and secure payment at point of sale, it normally takes 2-3 days for the customer’s bank to send the payment to your acquiring bank.

Once your acquiring bank has received the payment, they’ll go on to transfer the funds to the business’ bank account within the agreed period.

Refreshingly simple card payments

Paymentsense provides low-cost card payment solutions for in-store and online businesses. From Card Machines to Payment Gateways, you can get setup and start taking payments in no time.