Explained in an article for SCL here: http://www.scl.org/site.aspx?i=ed26289

1. Figure 1
How Card Acquiring Works
£ 11. Netting
£
Card Scheme 15b
15a
12a 12b
10 5 4 3 6
9 Acquirer’s Bank
Issuer’s Card Merchant Acquirer’s
Bank A/c Issuer Acquirer Bank A/c
13
2
£ 19 7 £ 17 14 £
8b
18 16
Consumer’s Consumer/ 1 Merchant Merchant’s
Current A/c Cardholder 8a Bank A/c
Consumer’s Bank Merchant’s Bank
Sale agreement
1. Cardholder offers to pay for an item using a card; Current Account agreement
2. Merchant seeks authorisation for the card payment from the
acquirer; Cardholder agreement
3, 4, 5, 6, 7: Acquirer/card scheme seek and obtain
authorisation from the issuer; Scheme issuing licence
8a, 8b. On receipt of authorisation, merchant accepts
Scheme acquiring licence
cardholder’s offer to purchase item, transmits the transaction
data to the acquirer and hands goods/receipt to the cardholder; Issuer’s banking agreement
9. Acquirer sends transaction data to the card scheme;
Merchant services agreement
10. Card scheme sends transaction data to the issuer;
11. Card scheme nets-off amounts it considers are due to/from Acquirer’s banking agreement
it from each issuer/acquirer;
12a/b. Card scheme issues a Settlement Report to each issuer Merchant’s business banking agreement
and acquirer;
13. Acquirer initiates remittance of transaction proceeds to
merchant’s bank account, either gross or net of fees etc.;
14. Acquirer’s bank transfers funds to merchant’s bank;
15.a/b Card scheme net-settles with each issuer and acquirer
(which it may do via its own bank service provider(s), which
are not shown);
16. Where the acquirer settles on a gross basis, the merchant
maintains a direct debit instruction to its bank in favour of
acquirer for fees etc;
17. Merchant’s bank transfers funds for fees etc to acquirer’s
bank;
18. Credit Card-holder initiates payment via his current account
to pay card issuer for credit card transactions;
19. Current account provider pays card issuer (these entities are
one and the same for debit card transactions).
1