CARD ISSUING, ACCEPTANCE AND ACQUIRING
For the foreseeable future, we’ll be using plastic cards for most day-to-day transactions.
This section will summarise how a retail bank is involved. Further information is available in the Digital Payment Certificate course.
Glossary of terms
It is worth understanding some of the common terms used in card payments, which we describe now in detail.
Card Schemes – these are the global card payment networks such as Mastercard, Visa, Amex, Diners Club, UnionPay and JCB. Some countries have purely domestic schemes such as UnionPay in China, RuPay in India and Verve in Nigeria and across Africa. Banks or other eligible financial institutions can become a member and issue cards to individuals or businesses, acquire card payments on behalf of merchants or do both, operating on the network of that card scheme.
EMV – (EMV Co) was set up to enable card-based payments to work seamlessly across the world and define much of the industry-wide standards. The original members comprising the E, M and V were Europay, Mastercard and Visa but now includes Amex, JCB (Japan), Union Pay (China) and Discover in US. Their technical standards include Chip and PIN cards, EMV 3D Secure to authenticate transactions, multi-scheme payment terminals and ATMs. Because of EMV customers can usually use their debit card or credit card outside of their home country, either physically or online.
Three-party and Four-party Schemes
This refers to the number of parties involved in processing the transaction:
Three-party scheme – is where the parties are:
- Consumer – who initiates the transaction;
- Merchant – which acquires money for the goods or services;
- Card scheme –acts as the scheme, the card issuer to the consumer, and the card acquirer to the merchant.
Examples of three-party schemes are Diners Club, Discover Card and American Express, although recently these schemes have also partnered with other issuers and acquirers to boost their circulation and acceptance.
Four-party scheme – is where there are four parties to the transaction:
- Consumer – who initiates the transaction
- Merchant – which requires money for the goods or services;
- Issuing bank – the consumer’s bank that issues the card;
- Acquiring bank – the merchant’s bank that collects their payment.
The process and diagrams in Figure A describe how card transactions are authorised, cleared, and settled in the four-party model. It is the most common as it includes Visa, Mastercard, Union Pay, RuPay and Verve.
Acceptance – this is being able to use your debit card or credit in a physical or online store or ATM. You cannot use a Visa-branded card in a store that only accepts Mastercard, for example, as the merchant will only have an acquiring agreement with Mastercard. The schemes accepted are usually shown by the merchant or ATM, displaying their brand logo.
Issuing bank – this refers to a retail bank that offers a debit card or credit card to its customers to use for payments. The issuing bank must join a Card Scheme and be licenced to use the scheme’s branding, which is also its acceptance, on its card. Licencing and authorisation involves undergoing checks, risk management checks, fraud management, systems integration for transaction authorisation, clearing and settlement, compliance with scheme rules and designs, and paying a collateral deposit.
Acquiring bank – this is the process by which the merchant processes transactions through their own bank or a PSP. They provide a range of services for their merchant customers besides holding their bank account.
Payment Service Providers – PSPs are non-banks who process card and other transactions for merchants.