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Every credit card transaction involves five core players working together: the issuing bank, the card brands, the processor, the payment gateway, and the sponsor bank. Each one has a distinct role, and understanding what each does makes it much easier to read your processing statement and evaluate whether you're getting a fair deal.
Here's a breakdown of each player and what they actually do.
The issuing bank is the financial institution that gave the cardholder their credit or debit card. If you bank with Chase and use your Chase debit card, Chase is the issuing bank. Issuing banks collect most of the interchange fees charged by the card brands, since they're the ones taking on the risk of lending to the cardholder.
The card brands are Visa, Mastercard, Discover, and American Express. They set the rules for how cards can be used, accepted, and secured, and they work with issuing banks to determine interchange rates across the industry.
A payment processor is the connective tissue between a merchant and the rest of the payment ecosystem. When a merchant runs a transaction, the processor routes the data to the right network and bank for approval. At the end of the day, when a merchant batches out, the processor moves funds from the issuing bank to the merchant's bank, calculates interchange fees, and sends reporting data to both the merchant and the card brands.
A payment gateway connects a merchant's payment technology (a terminal, an online shopping cart, an app) to the processing network. Gateways can be built directly into a merchant's existing software through an API, and many processors offer their own gateway as part of their service.
The sponsor bank handles the movement of money on the back end. It sends funds to the merchant, manages ACH payments to the processor, and pays out the card brands and issuing bank their portion of interchange fees.
A: A processor handles the routing of transaction data between the merchant, the card networks, and the banks, and calculates interchange fees. A payment gateway is the technology layer that connects a merchant's hardware or software (like a terminal or shopping cart) to the processing network. Many processors provide their own gateway, but the two roles are distinct.
A: The issuing bank, the institution that provided the cardholder's credit or debit card, receives the largest share of the interchange fee charged by the card brands.
A: No. Card brands like Visa and Mastercard set the rules and interchange rates for how cards are used and accepted. The issuing bank is the financial institution that issued the card to the customer and collects the interchange fee.
A: Interchange fees are the fees paid to the card-issuing bank on every credit or debit card transaction. They're set by the card brands (Visa, Mastercard, Discover, and American Express) and vary based on factors like card type, how the transaction is processed, and what data is submitted with it. With over 300 different rate levels across the major card brands, interchange is typically the largest component of a merchant's processing costs, and one of the most misunderstood line items on a processing statement.
Knowing who's involved (and what each party is responsible for) helps you understand where the fees on your statement are coming from and why. It also makes conversations with your processor more productive, since you'll know what questions to ask and who's accountable for what.
If you're trying to make sense of your current processing setup or want a second set of eyes on your statement, Propelr can walk you through exactly where your money is going and where there's room to save.
Propelr has partnered with Atrium Campus, a leading provider of cloud-native campus card management solutions, to embed secure payment acceptance directly into the Atrium platform, enabling institutions to seamlessly integrate modern payment capabilities into their campus technology ecosystem.
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