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The Who's Who of Payment Processing

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Do you understand who is involved in processing a credit card transaction?

There are many relationships within the payment card industry. We recently shared with you our list of the top 40 credit card processing terms and explanations because we believe that informed merchants are better equipped to find the best payment solutions for their business. Knowing and understanding the players of the credit card processing industry will similarly equip you and your business for success.

Maybe you already know that merchant service providers provide the same type of service as banks, but often do it with better customer service and support, with lower rates, and better prices on credit card processing equipment. Maybe you have no idea what the difference is between an issuing or acquiring bank, or between an ISO, MSP, PSP, and a processor. If you need guidance in the payment industry, REPAY is here to help.

There are a lot of moving parts with each credit card transaction with many parties involved. In this blog, we will start by covering the terms used to describe the players behind the scenes in the payment industry. Next, we will walk you through the process of a single credit card transaction to fully understand how those players work together to process your payment.

The Who’s Who of Credit Card Processing

Acquirer: The acquirer, also known as acquiring bank, is the bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks through the card brand franchise. The acquirer is the financial institution that maintains the merchant’s bank account and is the only institution in the process that truly handles the merchant’s money. In contrast, the Core Processor handles the transaction data and the Merchant Service Provider (MSP) facilitates signing up merchants to accept network-branded cards and servicing their account. Underwriting can occur with the acquiring bank or the Merchant Service Provider or both.

The acquiring bank plays a central role in the settlement and clearing process. The core processor passes the merchant’s transactions along to the card brands and the total deposit amounts to the acquiring bank in order for the merchant to receive payment. The acquirer depends on the core processor to pass along the merchant transactions.

The advantage to working with a payment solutions provider/merchant service provider is that they can work with any bank, and, if the payment solutions provider (PSP) works with multiple banks, the merchant can change banks and may not have to change credit card processing systems. The PSP is able to shop around for the best pricing and solutions for their merchants.  If the merchant is processing directly with a bank, they will have to know where to get the best rates, secure those rates for themselves, and ultimately change both accounts if they ever want to switch to a new bank. The right PSP’s are in actuality more flexible, lower priced, and have more available solutions. An all-in-one payment solutions provider such as REPAY can allow you to keep your merchant account but change banks, should the need ever arise.

Cardholder: The cardholder is the consumer purchasing goods or services from the merchant.  They get approved for a card by the issuer. The issuing bank is a licensed member of Visa or MasterCard and holds agreements with, and issues cards to consumers who apply.  The cardholder starts the payment cycle with a purchase and end it by paying for their credit card balance with interest or fees from their issuing bank or payment network. 

Core Processor: Merchants require a core processor to pass the details of each card transaction to the consumer’s issuing bank for authorization.  Within seconds, the processor will send the response back to the merchant as to whether the card is authorized or declined.  Finally, the core processor sends the details of the captured and settled authorizations to the merchant’s acquiring bank.  Core processors only work with banks that they are set up with. Merchants must process with a core processor that their acquirer uses. Merchants do not need to seek a core processor on their own as this will be provided by the acquirer or payment solutions provider. 

It is important to understand the difference between a core processor, such as Global Payments/TSYS and Fiserv/First Data, and a payment solutions provider/merchant services provider. Even though the latter are sometimes referred to simply as “processors”, it is not correct terminology. Payment solutions providers can be more advantageous for your business than directly engaging a core processor, as they are able to maximize the solutions each core processor has to offer in the merchants favor. The payment solutions provider works as a guide through the payments process.

Gateway: Payment Gateways serve to protect sensitive consumer data during the transaction process and allow the secure transfer of payment data between the buyer and the seller. The Gateway is a merchant service that securely sends credit card information from a website or brick-and-mortar store to the payment networks for processing and then returns transaction details and responses from the payment network back to the merchant.

Gateways are required to provide a secure connection to transmit information and maintain safety compliance and standards. A quality payment gateway will be easy to use, and will provide essential functions, such as encryption and security of all data as well as authorization requests and fulfillment.

Independent Sales Organization (ISO), Merchant Service Provider (MSP), and Payment Solutions Provider (PSP): The companies that manage credit card processing for merchants are referred to as ISOs, MSPs, and PSPs. The terms can be used almost interchangeably, with some key differences:

ISO is a loose term for any third-party sales representatives who represent the issuing banks for Visa. MSP is the term used for Mastercard transactions. PSP is a neutral term for a company that provides payment solutions to merchants and is not beholden to a specific card or bank. 

Independent Software Vendors (ISVs): ISV’s are software developers who build the integrations between the payment gateway and the accounting software, eCommerce, and/or point-of-sale (POS) software and offer various payment processing features and functionality.  Since REPAY Payment is a gateway, integrations developer, independent software vendor (ISV), and a merchant service provider (MSP)/Payment Solutions Provider (PSP),  we can maximize the strength of your software solutions and help keep your rates low by cutting down redundant fees. 

Issuer: The issuer, also known as the account issuer, or issuing bank, is the bank or financial institution who offers the credit or debit card to the consumer.  They underwrite the cardholder, set the credit limit, and issue the card agreements.  They pay for the transaction on behalf of the cardholder and collect payment from the cardholder.  Issuers also provide customer service and handle issues of fraud, lost or stolen cards to the cardholder.  The issuer is responsible for verifying the cardholder data and authorizing the amount of the transaction based on available funds.  Some of the main issuing banks are Bank of America, Chase, US Bank, Wells Fargo, and Discover.  American Express is both a card network and an issuer.  Issuers are not in the business of processing the transactions. 

Merchant: A merchant is any type of business who sells goods or services to consumers.  Credit cards are the most common payment method used for these transactions. 

Network: The credit card network, also known as the payment network, payment processing network, card association, or card brand is the bridge between the cardholders, merchants, and issuers.  They set the interchange rates and assessment fees that the merchant pays with each transaction.  These fees are non-negotiable and consistent for every business, every acquirer, and every issuer.  The credit card network includes brands like Visa, Mastercard, American Express, and Discover. 

That covers the 9 major players within the credit card processing industry. Next, we will take you through the 9 basic steps of a single credit card transaction to see how all of these players interact in order to process payments.

The 9 Basic Steps of a Single Credit Card Transaction

STEP 1:  The customer uses a credit card to pay a merchant. The transaction and credit card data is collected within the merchant environment with the specific payment systems they have in place, including point-of-sale (POS), eCommerce, or independent software vendors.

STEP 2:  The data is transmitted by the merchant through the Merchant Service Provider (MSP) or Independent Sales Organization (ISO) software via the Gateway to the Core Processor.

STEP 3:  The processor sends the transaction details to the appropriate card network

Step 4:  The core processor checks the status of the consumer’s account through their direct integrations into the card brands networks. The card brands hold all of the consumer account card balances on behalf of the consumer’s issuing banks (issuers) that lie within the card network.  

STEP 5:  The card network sends the approval code through the core processor and merchant environment systems back to the merchant to complete the sale.

STEP 6:   The card network sends the transaction details to the consumer’s issuing bank (issuer).

STEP 7:  For settlement, the merchant sends a batch of the daily transactions to the credit card core processor to provide the transaction details to the card brands and the merchant acquiring bank.

STEP 8:   The merchant’s acquiring bank deposits the funds in the merchant’s account. The acquiring bank is the only key player allowed to directly send money to the merchant for transactions made, per card brand regulations. 

STEP 9:  The consumer’s issuing bank sends the consumer a monthly statement of credit card transactions and the issuing bank gets paid from the consumer.

REPAY Payment Flow Chart

Need someone you can trust in the payments processing industry? REPAY has you covered. We are a gateway, integrations developer, independent software vendor (ISV), and a merchant service provider (MSP)/Payment Solutions Provider (PSP).  As an all-in-one processing solution, we are in an extremely strong position to offer the best business solutions for each individual merchant account’s needs and to reduce rates and fees.  For example, REPAY eliminates unnecessary PCI compliance fees, support fees, statement fees, gateway fees, acquirer fees, processor fees, etc.  

The REPAY Difference  

REPAY provides you with merchant statements that are easy to read and transparent. You will have access to line-item detail, which is more than what most processors provide. REPAY helps you save money with Level 3 processing, and Level 3 processing helps your business with added security against fraud and lower rates for B2B transactions.  REPAY acquires and passes all the required Level 2 and Level 3 data by extracting it from our ERP and eCommerce integrated credit card processing solutions. There’s no time-consuming mapping or manual data entry required.

Download the Buyer's Guide to Integrated Payments to learn more!

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