There are a multitude of steps and people involved in processing a transaction, a lot more goes on behind the scenes than people think. It is impressive that these payment methods happen almost instantaneously. To simplify the process, we are going to delve into the different steps and who is involved including their role and their responsibility in processing a transaction. Then we will round this off with a summary about how it all fits together:
1 – Issuers and Schemes. The banks that provide cards to consumer and business customers are known as ‘issuers’. Whilst there are a number of issuers across the world, they will use one of a small selection of card types such as Visa, Mastercard and Maestro, these card types are known as ‘schemes’. Banks or other eligible financial institutions become a member of these schemes. By becoming a member of the scheme, the member then gets the possibility to issue or acquire the payment transactions performed within the scheme.
2 – Acquiring Bank. An ‘acquiring bank’ is either a bank or eligible financial institution that processes credit and debit card payments on behalf of merchants. The term ‘acquirer’ simply refers to the process of acquiring funds from the consumer or business on behalf of the merchant from the card issuer that is part of a card scheme. NetPay is not an acquiring bank, it instead operates as what is known as an ISO – an independent sales organisation accredited by the schemes. Being an ISO enables NetPay to consume wholesale services from our acquiring bank partner.
3 – Merchant. The merchant is the seller, the person responsible for providing the product or service to the consumer of business and then using the services provided by their acquiring bank to take the card payment from their customers.
4 – Payment Gateways. Payment gateways are commonly referred to when talking about online payments. A payment gateway is effectively the service provider that enables the merchant to submit transactions from their website or payments application using a hosted form or API provided by the payment gateway to their acquiring bank. Payment gateways are effectively the middle party interconnecting with the banking gateways and providing the tools and utilities that enable merchant’s access to the acquiring bank to process the transaction. NetPay are a payment gateway provider, operating our own infrastructure and interconnects to the gateways.
5 – ISOs or payment processors take responsibility for the largest proportion of the complexity involved in delivering a payment solution, looking to the acquiring banks to simply process those transactions that are submitted to them. This enables them to control the critical value adds that give our merchants and resellers the ability to differentiate in the market when going up against the major High Street banks.
How it all fits together
In certain situations, the issuer and the acquiring bank might be the same organisation. For example, a consumer or business who bank with Barclays, who buy a service from a merchant that uses Barclays as an acquirer would create a situation where both the issuer (the bank that provided the card) and the acquirer (the bank that enabled the merchant to take the card payment) are the same. Many UK banks have sought to divest their interest in the acquiring banking divisions of their business. RBS sold the majority of their stake in Streamline/Worldpay in August 2010 to private equity and HSBC sold their remaining share in HSBC Merchant Services to Global Payments in June 2009. In these cases, certain transactions that would have once been fulfilled by one party as the issuer and the acquirer are now being managed by separate parties. In most instances the acquirer and the issuer will be different organisations. To demonstrate, the diagrams below show situations where the acquirer and issuer are different and where they are the same.