The Hidden Timeline of a Card Transaction

For most of us, a card payment feels instant: You tap, insert, or swipe, and the sale is complete. The merchant smiles, the customer walks away, and everyone assumes the money has moved.

But behind the scenes, there is much more happening after that swipe or tap happens. A card transaction passes through multiple hands—merchant, Point of Interaction (POI), provider gateway, acquirer, scheme, issuer processor—and those handoffs don’t happen in real time. And that means the timing of a promise or guarantee of funds is not the same as the funds actually being delivered; cutoffs at any point of the timeline can thus create delays that might seem arbitrary from the outside.

This is why the timeline of card payment matters: It can mean the difference between trusting your ledger (and your books generally), and being blindsided by a mismatch. The larger your operation, the greater the chance that such a mismatch has a ripple effect through cash planning, compliance, and even customer commitments. The timeline also explains why ordinary ledgers fall short, and why bi-temporality (the ability to record both when an event was requested and when it actually took effect) is essential.

When you actually look behind the scenes at what happens, the view can be disorienting at first, given that there are several players involved, and what these players do specifically in the transaction have different names. Here, then, we cover the basics of who is involved in card transactions, and what they do.

The “Four Corners” of a Card Transaction

The players for a card transaction are usually described using what is called the “Four Corner” model, where the four entities are the cardholder, the merchant (or acceptor), the acquirer, and the issuer:

• Cardholder: the customer making the purchase using their card (that is, the payment instrument issued by their financial institution or issuer).
• Merchant (or Acceptor): the business receiving payment. That merchant must have the necessary acceptance infrastructure or "Point of Interaction" set up to deal with the proposed payment instrument the cardholder wants to use—for example, a physical card, a contactless payment, or an Apple Pay or Google Pay token.
• Acquirer: The Merchant Service Provider, which underwrites and represents the merchant, and handles the acquirer processing (or outsources it) in order to interact with the scheme the acquirer is affiliated with. In this capacity, the acquirer is dealing with funds that need to be settled to the merchant.
• Issuer: the cardholder’s financial institution, which approves the transaction and ultimately pays on behalf of the cardholder. The issuer then debits the cardholder’s account accordingly, based on its relationship with the cardholder.

In addition to these four corners, there are Schemes, which are member organizations that impose rules and regulations which enable transactions between acquirers and issuers and their respective merchants and cardholders. Common schemes include Visa, Mastercard, Carte Bancaire, Dankort, Girocard,  Bancontact, Multibanco, Interac, MIR, JCB, Discover…you get the idea.

Note that schemes apply "Scheme Fees" for these services, where acquirers and issuers apply "Interchange Fees" between each other for their respective roles in enabling the transaction.

The Stages of a Card Transaction

As is probably becoming clear, what these players do has a vocabulary all its own. Thus,  different events on the timeline might be described as:

• Authorization: the Issuer’s promise to honor a payment. No funds move yet, however Issuers typically will create a hold, so that the cardholder’s available balance is decreased until the authorization is cancelled or confirmed (see Posting/Presentment)
• Capture: the Merchant’s confirmation that goods or services were delivered, which triggers clearing and settlement. In retail Authorization and Capture sometimes happen at the same time. This is generally the case with cash and carry, for example. Such transactions might be referred to as single message when the authorization and capture are one and the same message and operation.
• Clearing: the exchange of transaction records between Acquirer, Scheme, and Issuer.
• Posting/Presentment: the Cardholder funds are taken from their account
• Settlement: the final transfer of funds from the issuing bank to the acquiring bank.
• Funding/Merchant Settlement: the Acquirer now has a liability towards the Merchant’s account. This usually results in a payout towards the merchant's bank account, at which point the cash is real and spendable.

Each corner has its own calendar and cut-off cycles and its own definition of “when the money moves,”. These differences explain why timing can feel so slippery.

Why the Four Corner Model Matters

So why does the Four Corner model matter? Why would anyone other than, say, an acquirer or issuer need to worry about the various players in a card transaction?

Put simply, a card transaction is much more than an exchange of money between a merchant and a customer. Because several players are involved, there are multiple ways in which records need to be transferred, and assurances or guarantees made. All of these additional steps take time, and so the timeline of card payments complicates.

In the next part of our series, we will begin to look in more detail at what actually happens between the cardholder and the merchant, with an eye to understanding the role that the acquirer and the issuer play. It is here that we will begin to see cases in which the timeline of a card payment can get more complex, requiring more precise tools to capture what is going on.