In today’s digital world, payment cards have become the simplest and most common way to move money electronically. They allow consumers to pay for goods and services securely without carrying cash, and they link millions of merchants, banks, and consumers around the world.
This article introduces the basic types of payment cards and walks you through how a typical card transaction works — from the moment a card is used until the payment reaches the merchant’s account.
1. What Are Payment Cards?
A payment card is a financial instrument issued by a bank or licensed financial institution. It gives the cardholder access to funds — either directly from their own account or through a line of credit. Each card carries a unique number, expiry date, and a security code that helps identify the cardholder when making purchases or withdrawals.
Payment cards come in different forms depending on how they connect to your funds and how the money is settled. Let’s look at the main types.
2. Main Types of Payment Cards
A) Debit Cards: are the most common type. They are directly linked to a customer’s bank account, which means that when a payment is made, the amount is immediately deducted from the available balance. Debit cards are widely used for everyday spending, ATM withdrawals, and online purchases.
B) Credit Cards on the other hand, allow users to buy now and pay later. When a credit card is used, the issuing bank temporarily covers the payment and the cardholder repays it later, usually within a billing cycle. If the balance isn’t paid in full, interest is charged. These cards often include rewards, cashback, or installment options, making them a popular choice for both convenience and flexibility.
C) Prepaid Cards are slightly different. They aren’t linked to a bank account but instead are loaded with funds in advance. Once the balance is used up, the card must be reloaded before it can be used again. Prepaid cards are especially useful for people without bank accounts, travelers, or employers who want to distribute salaries safely.
💡 In the United States, for example, major card schemes such as Visa and Mastercard dominate the market, operating alongside networks like American Express and Discover. These cards can be issued as debit, credit, or prepaid, and are widely accepted both in physical stores and online platforms.
3. Who’s Involved in a Card Transaction?
Whenever you pay with a card, several key players work together in seconds to complete the transaction.
The Cardholder is the person who owns and uses the card. The Merchant is the business that accepts card payments. Each merchant is connected to an Acquirer, which is the bank or payment service provider responsible for accepting card payments on behalf of merchants.
All these connections are made possible through a Card Network (also called a card scheme), such as Visa, Mastercard, or Meeza. The network acts as the bridge that routes transactions between the Acquirer and the Issuer, which is the cardholder’s bank — the one that ultimately approves or declines the transaction.
4. The Card Transaction Flow (Step by Step)
To understand how a card payment travels behind the scenes, imagine this simple flow:
When you tap your card at a point of sale or enter it online, the transaction details are sent to the merchant’s Acquirer. The Acquirer forwards the request through the Card Network to the Issuer for verification.
The Issuer checks if the card is valid, if there are enough funds or available credit, and if there are no fraud concerns. Once everything checks out, the Issuer sends back an authorization response — either “approved” or “declined.”
After approval, the merchant completes the sale. The Acquirer and Issuer then exchange transaction data through the network in what’s called clearing, followed by settlement, where funds are transferred from the Issuer to the Acquirer, and finally to the merchant’s account. Although the settlement might take one or two business days, the authorization step — the one that decides whether the transaction is approved — happens in just a few seconds.
-Card Transaction Flow Diagram
5. Why Payment Cards Matter
Payment cards are essential in building a cashless economy. They make everyday payments faster and more secure, reduce the need for handling cash, and enable online commerce. For businesses, they simplify transactions and minimize the risks of counterfeit or unpaid money.
For governments and central banks, cards help improve financial inclusion and increase transparency in financial flows. In short, payment cards are not just tools for convenience — they are pillars of the modern payment ecosystem.
What’s Next?
This article introduced the basic concepts of payment cards — their types, main players, and how transactions flow between them. In the upcoming posts, we’ll dive deeper into the world of cards and payments, exploring topics such as how card networks operate and how regulators oversee these systems.
Each article will build on this foundation to give you a clearer, more comprehensive understanding of the payment ecosystem and how money truly moves behind the scenes.