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The Payment Crew

by Gregoire Delpit on

Online payment is a complex ecosystem and too often only experts succeed to navigate into it. The objective of this article is to provide, in less than 500 words, a simplified overview of the players involved in an online transaction. If words like Issuing Bank, Acquirer, Processor or Gateway do not sound familiar to you, this article is for you.

Payment is about moving money from the bank account of the customer to the bank account of the merchant.

Issuing Bank and Acquiring Bank:

The customer’s bank is called the Issuing Bank, named as such because it is the bank which has issued the payment card used to realize the transaction.

The merchant’s bank is called the Acquiring Bank or the Acquirer. Much like the Issuing Bank provides the customer a bank account and a solution to pay (the credit card), the Acquirer provides the merchant an account to receive money and a technical solution to accept payments (more on this below).

Card Network:

To move money from the customer’s account to the merchant’s account, the two banks must be able to communicate. It is made possible by the card network. Most famous are Visa, Mastercard, and American Express.

Payment Providers:

To accept online payments, an online merchant needs to set up a payment system on its website and to open a merchant account (an account that allow merchants to accept payment namely from debit and credit cards). To do so online merchants have the choice to work with one or several payment providers.

Payment Acquirer:

The merchant account is provided by a Payment Acquirer.

It is a financial institution accredited by the card networks. This means the acquirer is authorized to connect to the card networks and exchange information with the other members of the network.

The Payment Acquirer is responsible for the transaction on behalf of the online merchant. It will provide its own technical payment infrastructure to the merchants or ensure that the providers selected by the merchant are reliable and secure.

From a technical point of view to accept a payment, an online merchant needs to collect its customers information and to transmit it. Here come two new terms: Payment Gateway and Payment Processing. Sometimes the Acquirer provides the merchant its own Payment Gateway and its own processing solution. Sometimes the merchant contracts with third party providers that are accredited by the Acquirer.

Payment Gateway & Payment Processing:

A Payment Gateway is a secure page on the merchant’s website where the customer will enter his card information. This secure page is the point of contact between the customer, the merchant and the payment world. Merchants can build out this secured environment independently but most of the time merchants employ a third party provider.

When the customer enters his or her card information and clicks on “Purchase”, a secured connection allows the card information to transit from the Payment Gateway to the Card Network. This is Payment Processing.

And that’s it! You should now be familiar with the terms Issuing Bank, Acquiring Bank / Acquirer, Payment Gateway and Payment Processor. To continue your journey through the payment world, please see our post on The Secret Life of a Payment Transaction.