What is Card Acquiring, anyway?

Card Acquiring involves the movement of money within a financial network of interconnected payment services. How does it work today, and where is it going tomorrow?

We all buy stuff. Buying stuff is ultimately how many survive in today’s commercialised existence on this planet Earth. We find a job, that we hopefully enjoy and that pays us good enough money to be able to buy the things we need, and if more fortunate than some, the things we don’t actually need but enjoy buying anyway. At the most fundamental level, commerce exists today because of the need to obtain things. It has just so happened that the development of humankind and need for survival today has evolved and continues to revolve around a basic essential need to buy and sell. This need in almost all cases is facilitated by the exchange of money; credits and debits, and super large scale electronic payments networks which are ultimately governed by the leading most influential and internationally recognised card payments brands in existence today, e.g. VISA and MasterCard, among others.

To the layman, how payments actually work today is complicated. Most don’t want to know, most don’t need to know but did you ever wonder what is actually happening behind the scenes every time you insert your debit or credit card into a point of sale (POS) terminal and perform a financial transaction? You would probably be surprised to learn that there are a great deal of different things going on in unison to realise and approve or decline your payment request.

Visualise a worldwide network of lightspeed tunnels (and in fact in many cases it is quite literally this as your financial data zooms around a fibre optic network infrastructure) that transport your private and protected card data around a system of interconnected partners in the vast expanse that is a payment network, rapidly stopping off at each connected member to validate some sensitive information or perform a security check, only to return to the point at which the sale was born, the POS terminal, faster than you could ever imagine.

Authorisation

Authorisation
The image above illustrates a typical payment authorisation flow from a POS terminal originating in a merchant establishment.

1. Consumer presents their credit card for purchase.
2. Merchant inserts the card in the POS device and by doing so initiates a request via the payment provider and onwards to the acquiring bank. (An acquiring bank is an institution that processes payments on behalf of a merchant)
3. Acquiring bank forwards the request to the credit card network.
4. Credit card network forwards the request to the card issuing bank who can permit the transaction or not. (An issuing bank within an association, e.g. Visa or MasterCard, is permitted by the acquiring bank to remit payments)
5. Credit card network forwards the issuing bank response to the acquiring bank.
6. Acquiring bank forwards the response to the merchant and the payment is approved.. in this case!

This journey is far from straightforward. As the above shows, there are lots of stakeholders involved; representatives of compliance, security, protection, validation, verification to name just a few. Each one must get paid at the end of the day, so it’s not a cheap system either. Parties’ fees range from varying percent points of the value of the initial sales transaction captured at the POS to fixed rates per transaction. Footing the bill rests with the consumer who injects the money into the system at source.

The process of authorisation all happens in a matter of seconds, and for each transaction there follows a subsequent, usually much slower process of settlement. Each member of the network must get their money, most importantly the acquiring bank facilitating the payment and the merchant selling the goods. The key player here in all of this is the Payment Facilitator. A Payment Facilitator is a legal entity responsible for moving funds between buyers and sellers.

Settlement

Settlement
Settlement is the process by which the total value of a payment transaction is divided and delivered by predetermined values to all stakeholders involved in the capturing process.

The image above illustrates how funds enter the system at source and facilitate the settlement process.

1. Merchant deposits approved transaction receipts with the acquiring bank. Nowadays this process is electronic.
2. Acquiring bank credits the merchant’s account to the value of all receipts, minus fees.
3. Acquiring bank submits a debit request to the credit card network.
4. The credit card network facilitates the settlement, takes their fee, pays the acquirer account and debits the card issuer account.
5. Card issuer posts the transaction plus any fees to the cardholder account.
6. Card holder receives a monthly statement of all settled transactions.

This post is an exert from a original article I wrote for a FinTech start-up currently working on the future of payments. I hope you have found it informative! Any questions or doubts please do get in touch or comment below and I will be more than happy to speak with you.

Both illustrations are original and were also created by me, the author.