Payments

Customers today pay in so many ways—anywhere, any time, and any way. To the consumer, the payments industry is as simple as providing a card for payment and waiting for the approval. As a payment professional the behind-the-scenes processes are much more complex. This process usually coined merchant services, is also used in a broad term to describe a range of financial services for businesses.

Industry players

The successful processing of a payment transaction involves several different industry participants. Understanding the role of each participant is critical in understanding our role in the industry. Below we introduce you to many of these industry players and their roles in a typical credit transaction processing workflow.

Consumer

Consumers represent individuals that present a variety of payment methods to merchants for the purchase of goods and services. These payment methods include checks, credit or debit cards issued by Issuing Banks, other payment cards, such as prepaid cards, and of course, cash.

Networks

Payment Networks (a.k.a. Card Associations) establish and enforce the rules regarding the acceptance and use of their payment network by its members. They also establish security and compliance regulations, data requirements, and partner with member Issuing and Acquiring Banks to conduct clearing and settlement processing of credit card transactions through the collection of interchange and assessment fees. Example: Visa, MC, Amex, Genie.

Issuer

Issuing banks are financial institutions that provide traditional banking services such as savings and checking accounts, loans, and credit card issuance to consumers and commercial businesses. Issuing Banks promote the use of their payment cards and charge fees (interchange) for the use of their cards as well as interest on outstanding balances. Example: Fifth Thid Bank, Comerica, Capital One.

Acquirer

Acquiring Banks are financial institutions that provide merchants with merchant processing accounts and handle the acceptance and payment of credit card transactions on those accounts. Acquiring Banks pay fees to both the Issuing Banks and the Card Networks for transactions processed on behalf of their merchant accountholders. Example: Worldpay.

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Processor

Processors are organizations that establish partnerships with Acquiring Banks to provide payment processing services to merchants. Processors provide a single point of merchant connectivity for the authorization and settlement of credit card transactions, and route transactions to the appropriate payment network based on the method of payment accepted by the merchant. Example: Worldpay.

ISO

Third party sales partner who signs merchants to accept payments without additional risk to the acquirer/bank. Example: Worldpay ISO.

Payment Facilitators

Payment Facilitators, a.k.a. payment aggregators, or simply PayFac™, provide payment processing services and other integrated back office solutions to multiple, small to mid-sized merchants, referred to as sub-merchants. These operate across a wide variety of industries and market segments, and a single PayFac (the “master merchant”) can have hundreds, even thousands, of sub-merchants as their clients. Example: Square.

Resources

Authorization process

An authorization is the process of verification of the validity of a credit card and the balance allowable on the purchaser’s credit line to purchase goods or services from a merchant. You can obtain authorizations through a point of sale system.

Step 1

Customer enrolled, receives welcome email, logs in

Step 2

Answers questionnaire to complete their profile. Download ISP template

Step 3

Uses the portal to conduct scanning (if applicable)

Step 4

Completes self-assessment questionnaire (SAQ) online

Step 5

Attests to their compliance

Step 6

Ongoing task reminders to maintain compliance

Step 6

Ongoing task reminders to maintain compliance

Step 6

Ongoing task reminders to maintain compliance

Interchange

The flow of information and money between these parties—always through the card Networks—is known as the interchange, and it consists of a few steps:

Authorization

The cardholder pays for the purchase and the merchant submits the transaction to the acquirer. The acquirers verifies with the issuer—almost instantly—that the card number and transaction amount are both valid and then processes.

Batching

After the transaction is authorized it is then stored in a batch, which the merchant sends to the acquirer later to receive payment (usually at the end of the day).

Clearing & Settlement

The acquirer sends the transactions in the batch through the card association, which debits the issuer for payments and credits the acquirer. In effect, the issuers pay the acquirers for the transactions.

Funding

The acquirer has been paid, the merchant receives payment. The merchant receives is equal to the transaction amount minus the discount rate, which is the fee the merchant pays the acquirer for processing the transaction.

Settlement process

Settlement is the process of managing electronic payment transactions so they can clear and be funded. To make this happen, the merchant, must present approved card transactions to the acquirer. The acquirer then submits those approved transactions to the payment networks for clearing through interchange. You may hear these transactions referred to as "deposit" transactions.

Step 1

Customer enrolled, receives welcome email, logs in

Step 2

Answers questionnaire to complete their profile. Download ISP template

Step 3

Uses the portal to conduct scanning (if applicable)

Step 4

Completes self-assessment questionnaire (SAQ) online

Step 5

Attests to their compliance

Online Training

Payments 101 - part 1

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Learn about the key events in bankcard processing history and industry participants and the unique roles each plays in a typical credit card transaction processing workflow.

Watch

Payments 101 - part 2

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In this module we introduce the different types of payment solutions, concepts and terminology of the payment industry.

Watch