Quick disclaimer: this is not a professional industry guide. It’s simply my personal take from my time working at a payment company. I’m sharing it because I know how confusing payments can feel when you’re just getting started, and maybe my notes will help someone build a mental model of how it all works.
Let’s meet the four main players in every card transaction
Every card transaction involves four main players:
- Cardholder (you)
- Issuer (your bank — think Chase, BoA, Citi)
- Merchant (the store you’re buying from)
- Acquirer (the bank that holds the merchant’s account — or, in the case of payment facilitators, the account is held via the PSP)
The card network connects them all. This includes Visa, Mastercard, Amex, and Discover. While Amex and Discover are also financial institutions, for simplicity I’ll use Visa and Mastercard as the main examples below. The card network is basically the rails that move the transaction from point A to point B.
Here’s how a payment actually flows in real time
Let’s say you place an order online using your Chase Visa credit card:
- The merchant submits the transaction to the payment processor.
- The processor formats the transaction, performs fraud checks, and submits it through Visa’s network to Chase.
- Chase approves, and you get your confirmation.
If this were a debit card, you might be asked for your PIN. With credit cards, the authorization step is often “silent,” and your signature or click-to-confirm is considered enough.
Information goes first, money comes later
Everything above is just information flow — basically a yes/no message.
The money flow happens later. When you pay $10 to the merchant, that $10 doesn’t land in their bank account right away (we’re talking about traditional card processing, not real-time payments).
Here’s the gist:
- The card network logs every single transaction throughout the day.
- At the end of the day, they calculate a net settlement. This shows how much each bank owes or is owed by the other banks.
- Instead of moving money one transaction at a time, banks just settle the net amount.
This netting process is done through central clearing systems (like Fedwire or ACH in the U.S.). The card network doesn’t actually “move” money; it just produces the report of who owes what. The actual funds transfer happens between the banks themselves.
That’s why most merchants get their payout on T+1 (next business day). Cross-border transactions often take T+2 because extra time is needed for FX conversion and international clearing.
Seeing things from the merchant’s perspective
If you’re a merchant and you want to accept card payments, you need an acquirer or a payment service provider (PSP).
Most PSPs are “aggregators,” meaning you only need to integrate once and you can start accepting Visa, Mastercard, Amex, Discover, ACH, even digital wallets. That’s the convenience of a PSP. It handles the messy part of connecting to all those networks so you can focus on running your business.
Why KYC can feel like a big hurdle
Before you can go live, you’ll go through KYC (Know Your Customer). The acquirer will ask for:
- Your legal entity details
- UBO (Ultimate Beneficial Owner) information
- Your business model and supported currencies
- Historical transaction data (if you have any)
- … and more
Based on that, they assign you a risk profile. High-risk merchants may need to put down a reserve, have longer settlement cycles, or even get rejected.
And even if you’re approved, they’ll keep monitoring your account. If your refund or dispute rates spike, they might increase your reserve, delay settlements, or suspend you.
Here’s what PSPs really do behind the scenes
First of all, PSPs aren’t banks. They’re technology companies that act as Payment Facilitators (PayFacs).
They work with licensed acquiring banks behind the scenes, bundle all the complex payment rails into APIs, and make it easy for merchants to integrate payments in a few lines of code.
This is why so many startups choose them as their first payment solution, not because they’re the only option, but because they let you get started quickly without negotiating directly with banks or card networks.
Of course, there’s a trade-off. PSPs also carry risk:
- If you’ve already been paid out and a customer disputes the charge, the PSP fronts that refund.
- If your account balance is zero and you disappear, the PSP eats the loss, which is why they’re so careful with onboarding and risk monitoring.
This is how money really moves at the end of the day
One thing that used to puzzle me: who actually initiates the money movement during daily settlement?
Here’s the answer I eventually found:
- Card networks don’t move money. They just provide the net settlement report.
- Banks move money. Each issuer and acquirer uses that report to push/pull funds through central clearing systems.
So yes, Visa and Mastercard really do stay “hands off” when it comes to holding or transferring funds.
When you step back, here’s what it all looks like
Payments can sound complicated — issuers, acquirers, gateways, processors, PayFacs. But at its core, it’s not that different from other industries. Networks keep the ledger, banks move the money, and payment processors make it easy for merchants to plug in.
It’s a layered system, kind of like a supply chain. Visa/Mastercard don’t connect with every single merchant directly. They connect with a few large acquirers, who then connect with PSPs, who then serve thousands of merchants.
Honestly, this is a pattern you see in many industries. Take Google Cloud, for example — it’s essentially a “virtual landlord.” You’re renting space, servers, and infrastructure instead of owning them outright, just like a company renting office space. Many so-called “new” inventions are really digital versions of traditional services. Payments work the same way: the technology is new, but the underlying principles mirror what’s been done in banking and commerce for decades.
I wrote this post for anyone who’s new to payments, or for merchants who’ve ever wondered why their payment processor asks for so much documentation or suddenly withholds funds.
If you want to go deeper, there are amazing industry white papers and books out there. But if you just wanted a peek behind the curtain, this is my personal way of making sense of it all.
Waypoints 