$Visa(V)$ Credit cards are used every day to pay bills, purchase products online and in stores, and to pay for all types of services.

However, many people do not fully understand how the payments are coordinated between a customer's credit card, the different banks involved, and the payment processor to allow for the quick and easy payment experience that we often take for granted.

The Card Brands

Visa and Mastercard, the two biggest card brands in the world, are actually better understood as credit card networks. These credit card networks facilitate a system of real-time authorization and funding transfers between merchants (businesses), customers (cardholders), and their respective banks (acquiring bank and issuing bank respectively).

The Cardholders and Issuers

The customer who uses a credit card to make purchases is referred to as the cardholder.

A customer will usually enlist their local bank to apply for a credit card. It's the customer's bank that is responsible for issuing the credit card on behalf of the card brands. Therefore, the banks that provide credit cards are called issuing banks or issuers.

There is risk involved for issuing banks because they are extending credit to cardholders. If, for example, a cardholder is unable to pay their credit card balance, the loan must be written off. They are also responsible for compensating their customers if there are fraudulent transactions with their card. This risk is why issuing banks provide credit cards, and not the card networks themselves.

The Merchants and Processors

Just like cardholders, businesses like yourself who are looking to accept credit cards, referred to as merchants, do not contact Visa or Mastercard directly. Instead, businesses will sign up for a merchant account through a credit card processor. There are many processors available, examples include Helcim, Moneris, Chase Paymentech, First Data, Global Payments, PayPal, and others.

The processor will provide several functions to the merchant. First, they will register the business with the various card networks, so that they can accept all the payment types required. The processor essentially acts as the middleman between merchants and acquiring banks and will arrange for the processed funds to be deposited back into the merchant's bank accoun

t, typically within a few business days. The processor will also provide the merchant with the 

equipment

and software needed to begin accepting credit cards. Finally, the processor will charge processing fees for their service, and usually provide customer service to help merchants in need.

Visa margin is typically in the 50% which is phenomenal. It is in a highly profitable business model with huge economic moat.

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