Merchant Services: Who Does What?

Card Schemes

A card scheme, in the context of financial transactions, refers to the payment network that facilitates electronic fund transfers between the cardholder and the merchant through their respective banks. These schemes are the systems and rules that govern the issuance and acceptance of debit and credit card transactions. Key aspects of card schemes include:

1. Major Players: The most well-known card schemes are Visa and MasterCard, but there are other schemes like American Express, Discover, JCB (Japan Credit Bureau), UnionPay (China), and RuPay (India).
2. Role in Payment Processing: Card schemes provide the infrastructure and set the rules for transaction processing between card issuers (the cardholder’s bank) and acquirers (the merchant’s bank). They ensure the security, efficiency, and reliability of these transactions.
3. Standards and Compliance: They establish standards and requirements for all parties involved in a transaction, including security standards like PCI DSS (Payment Card Industry Data Security Standard) to protect cardholder data.
4. Fee Structure: Card schemes determine the interchange fees, which are fees paid between banks for the acceptance of card-based transactions. These fees are a significant aspect of the revenue model for card schemes.
5. Innovation and Development: They are often at the forefront of developing new payment technologies and capabilities, such as contactless payments, mobile wallet integrations, and enhanced security features like EMV chip technology.
6. Global Reach and Acceptance: Card schemes facilitate international transactions, enabling cardholders to use their cards in different countries and currencies, which is a key part of their appeal to consumers and businesses alike.
7. Regulation and Oversight: While they operate as private entities, card schemes are subject to financial regulation and oversight in the various countries and regions where they operate.

Card Schemes are integral to the global financial system, providing the necessary framework and standards for the widespread use of debit and credit cards in both physical and online transactions.

Acquirers

In the context of merchant services, an acquirer (also known as an acquiring bank or merchant acquirer) is a financial institution that processes credit and debit card transactions on behalf of a merchant. The role of an acquirer is pivotal in the card payment transaction process. Here’s an overview of their functions:

1. Merchant Account Provision: Acquirers provide merchants with the necessary accounts to accept card payments. These accounts enable merchants to process transactions from card networks like Visa, MasterCard, and others.
2. Transaction Authorization: When a customer uses a credit or debit card to make a purchase, the merchant sends the transaction details to their acquirer. The acquirer then forwards this information to the card network, which in turn sends it to the cardholder’s issuing bank for authorization.
3. Payment Processing: After receiving authorization, the acquirer facilitates the transfer of funds from the cardholder’s account to the merchant’s account. This process involves several steps, including settlement and funding.
4. Risk Management and Security: Acquirers are responsible for ensuring that merchants comply with various security standards (like PCI DSS) and are also involved in monitoring transactions for fraudulent activity to mitigate risks.
5. Fees and Charges: Acquirers typically charge merchants various fees for their services, which can include transaction fees, monthly account fees, and other related charges.
6. Customer Service and Support: They provide support to merchants for issues related to transactions, account management, and compliance with industry regulations.

Acquirers play a critical role in enabling merchants to accept card payments, managing the technical and financial aspects of card transactions, and ensuring security and compliance within the payment ecosystem.

Payment Service Providers (PSP)

In the context of merchant services, a Payment Service Provider (PSP) is a company that offers a broad range of payment processing services to merchants, enabling them to accept various forms of electronic payments, including credit and debit cards, bank transfers, and alternative payment methods like e-wallets. PSPs serve as intermediaries between merchants, customers, acquiring banks, and payment networks. Here are key aspects of what PSPs do:

1. Payment Gateway Services: PSPs provide payment gateway solutions that facilitate the transmission of transaction data from the merchant to the acquiring bank and other payment networks. This includes securing the data and ensuring its swift and accurate transfer.
2. Multiple Payment Methods: They allow merchants to accept a wide range of payment methods through a single platform, simplifying the merchant’s payment infrastructure. This can include card payments, bank transfers, mobile payments, and other digital payment methods.
3. Merchant Accounts: Some PSPs also offer merchant account services, working in partnership with acquiring banks. They help businesses in setting up accounts needed to receive funds from card transactions.
4. Integration with E-commerce Platforms: PSPs often provide tools and APIs for easy integration of their payment processing capabilities into various e-commerce platforms and websites, making it easier for merchants to start accepting online payments.
5. Compliance and Security: They ensure that transactions are compliant with industry standards such as PCI DSS (Payment Card Industry Data Security Standard), protecting sensitive data and reducing the risk of fraud.
6. Fraud Detection and Risk Management: PSPs employ advanced security measures and fraud detection tools to monitor transactions and mitigate risks associated with online payments.
7. Reporting and Analytics: Many PSPs offer reporting tools that give merchants insights into their sales, transaction history, and customer behavior, aiding in better business decision-making.
8. Customer Support: They provide customer support to assist with issues related to transactions, technical difficulties, or payment processing.

PSPs are particularly valuable for small to medium-sized businesses that may not have the resources to manage multiple relationships with different payment processors and banks. By offering a one-stop solution for payment processing, PSPs simplify the payment acceptance process for merchants, allowing them to focus on other aspects of their business.

Independent Sales Organisations (ISO)

In the realm of merchant services, an Independent Sales Organisation (ISO) refers to a third-party business that is authorized to sell or lease payment processing services on behalf of an acquiring bank. ISOs act as intermediaries between merchants and acquiring banks, offering a range of services to help businesses accept card payments. Their primary roles and functions include:

1. Merchant Acquisition: One of the main roles of ISOs is to acquire new merchant clients. They actively seek out businesses that need to process card payments and offer them payment processing solutions. This includes small and medium-sized businesses that might not be directly approached by large acquiring banks.
2. Sales and Marketing: ISOs engage in sales and marketing activities to promote their payment processing services. They often have dedicated sales teams that work to onboard new merchants.
3. Customized Payment Solutions: They often provide customized payment processing solutions that are tailored to the specific needs of individual businesses. This might include offering specialized equipment, software, or payment processing rates.
4. Customer Service and Support: ISOs typically provide customer support and service to their merchant clients. This can include assistance with setting up payment processing systems, troubleshooting technical issues, and addressing transaction-related queries.
5. Risk Management and Compliance: While the acquiring banks handle the actual processing of transactions, ISOs often assist in ensuring that merchants comply with industry regulations, such as PCI DSS standards, and may offer guidance on risk management and fraud prevention.
6. Equipment Leasing or Selling: Many ISOs also lease or sell point-of-sale (POS) systems, card readers, and other necessary hardware for card processing to merchants.
7. Relationship Management: ISOs maintain relationships with both the merchants and the acquiring banks. They act as a liaison, ensuring that the needs of both parties are met.
8. Value-Added Services: Apart from basic payment processing, ISOs might offer additional services like business analytics, loyalty programs, and other value-added services that can help merchants grow their business.

ISOs are particularly valuable for smaller merchants who may not have the volume of transactions or the negotiating power to work directly with large acquiring banks. Through ISOs, these merchants can access tailored payment processing solutions and dedicated customer service, which might not be as readily available directly from large banks.

PAYG (Pay As You Go) Card Payment Facilities

Companies that offer PAYG (Pay As You Go) card payment facilities, as opposed to traditional contracts and merchant accounts, are typically referred to as “Mobile Point of Sale (mPOS) providers” or “Payment Facilitators (PayFacs).” These terms describe the nature of the services they offer:

1. Mobile Point of Sale (mPOS) Providers: These companies offer flexible, mobile solutions for processing card payments. mPOS systems are often app-based and use portable card readers that connect to smartphones or tablets. They are ideal for small businesses, pop-up stores, or vendors who require mobility and simplicity in their payment processing solutions. mPOS providers usually offer PAYG pricing models, charging per transaction rather than requiring monthly fees or long-term contracts.
2. Payment Facilitators (PayFacs): Payment facilitators provide a simplified onboarding process for merchants to accept card payments. They aggregate multiple merchant accounts into a single master merchant account. This approach allows individual merchants to accept card payments without having to set up a full merchant account with an acquiring bank. PayFacs are known for offering straightforward, PAYG fee structures, appealing to small businesses or those with low transaction volumes.

Both mPOS providers and PayFacs typically offer easy sign-up processes, straightforward fee structures with no long-term contracts, and user-friendly technology, making them popular choices for small or mobile businesses, freelancers, and individuals. Companies like Square, PayPal Here, and Stripe are examples of such service providers.