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February 7 - March 13, 2021
Stripe is a Gateway and gives you application program interfaces (APIs) and tools that enable you to Take payments—that is, if you have a website that sells coffee beans from all over the world, you could use Stripe to accept payments on your website. Marqeta is an Issuer Processor and has tools and APIs that allow you to Make payments—that is, you can use Marqeta’s APIs to create the credit or debit card that would allow you to buy those special coffee beans from Yemen.
Key Term: Issuer Processor The Issuer needs a technology provider that can connect with the payment networks. Usually, the Issuer Processor will have a piece of hardware in their data centers and a fast network connection directly to the payment networks to approve or decline a transaction. Sometimes, the Issuer may have built this technology in-house or may rely on a third-party Issuer Processor to handle this. Examples include Marqeta, Tsys, Galileo, i2c.
Key Term: Merchant Acquirer The Merchant Acquirer goes out and acquires Merchants and provides them the tools and facilities to accept and process card-based payments. Examples include Citibank, Wells Fargo, US Bank, and Chase.
Key Term: Payment Network Sometimes referred to as a “Card Scheme” or just as a “Network.” Examples of Payment Networks include Visa, Mastercard, American Express, and Discover. These Payment Networks provide the rails for card-based transactions to occur. They sit in between Acquirers and Issuers and pass messages back and forth to make the transaction happen. The Payment Networks also set the communications rules and standards that the Acquirers and Issuers need to adhere to.
Swiping it—the card’s magnetic stripe is slid across the card reader. • Dipping it—the card’s chip is inserted into the card reader. • Tapping it—the card, mobile phone, or smartwatch is tapped on a contactless terminal. • Entering it—typing it into a web browser to buy something online.
Key Term: Clearing The term “Clearing” is used primarily by Issuers, but can also be referred to as “Capture” by Merchant Acquirers. Clearing happens toward the end of the day for most Merchants and will factor in tips, transaction reversals, and returns. This is basically the Merchant confirming these transactions are valid and that these funds are ready to be moved or “settled.” Key Term: Settlement Settlement is the actual movement of money from the cardholder’s bank account, the Issuing Bank, to the Merchant’s bank account, the Acquiring Bank. This movement of money typically happens via
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In the case of online transactions, clearing typically happens when goods are shipped. This is why you may see a transaction that you may have made online staying in a “Pending” state for a long period of time.
Funds Are Settled When Mastercard, the Card Network, moves the money from Emmet’s bank to Bucks of Star Coffee’s Merchant Acquirer’s bank, it does so like this: • Debits Emmet’s account for $5.75. • Leaves $0.06 for Moneybin Bank because they are the Issuer of Emmet’s debit card. This $0.06 is considered revenue for Moneybin Bank because they issued the card to Emmet. • Keeps $0.06 Network Assessment fee for itself. • Sends $5.63 (5.75 – 0.06 Network Assessment – 0.06 Interchange) to Bucks of Star Coffee’s Merchant Acquirer’s bank.
Merchants will typically want to keep their chargeback rates below 1 percent. Once a Merchant gets close to 1 percent or goes over, it needs to work to bring that percentage down or risk losing their ability to accept card-based payments through their Merchant Acquirer. The card networks place stringent rules on their Merchant Acquirers to make sure that all Merchants maintain chargeback rates below 1 percent. Specialized Merchant Acquirers will underwrite riskier businesses but will charge a lot more per transaction.
Visa and Mastercard’s strategy is about getting as many cards out there as possible and making sure these cards are accepted in as many places as possible.
in 2017, Visa accounted for 60 percent of all purchase volume in the US for all debit and credit cards. American Express only accounted for 13 percent, and Discover was at 2 percent.
Many of the neo-banks (online only banks), such as Branch, Chime, Money Lion, and Varo offer access to these networks.
In this case, the end-user of their debit card could go to these ATMs and take money out without incurring any fees. These fees, however, are passed on to the card Issuer, so in effect, Chime is paying for these ATM withdrawals.
Visa and Mastercard are considered “Open Card Networks,” while Discover and American Express are considered “Closed Card Networks.” Visa and Mastercard rely heavily on their network of Acquirers and Issuers to distribute their brands out into the market.
It is important to understand that money actually isn’t being moved at the time of the card swipe. The real money moves at the time of settlement, typically a day later, and this movement of money happens between banks.
only entities that can actually move real money are banks or entities
But how are these neo-banks able to offer this while the big banks can’t? The main reason is that these new “neo-banks” aren’t actually banks but rather tech companies that partner with regional banks such as Sutton Bank, Bancorp, or Meta Bank. These regional banks have less than $10 billion in assets and are able to charge a higher Interchange rate because they are considered exempt from the Interchange rules set forth in the Durbin Amendment and are considered “unregulated.” This means that these regional banks are able to issue cards that earn higher “unregulated” Interchange. Instead of
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the setup process for Square is really easy. He set up an account within minutes by providing Square some information online. This can be done because Mufasa’s donut shop would be considered a sub-Merchant under Square.
The drawback here is that anytime someone swipes a card at Mufasa’s donut shop, the transaction history at the customer’s bank will always start with an “SQ*.”
Program Manager: Marqeta Key Term: Program Manager The program manager is the one who is managing the day-to-day operations of the card program including settlement, fraud management, and maintaining the relationship with the Issuing Bank, card manufacturer, card network, and the cardholder.
If you select “Credit,” it will typically ask you to sign the receipt or sign on the terminal. If you select “Debit,” then it will ask you to enter your four-digit PIN.
Credit cards typically command higher Interchange rates (between 2 to 3 percent of the transaction value) because there are more costs to offering credit to customers for the Issuer, because in essence, the Issuer is offering a thirty-day loan to the buyer and, thus, incurs the cost of capital.
Merchants who clear transactions faster can also qualify for better Interchange rates and this is factored into their Interchange rate table.
the Track 3 data will show both the mocha and the croissant, instead of just showing the total dollar amount of the swipe.
Over 82 percent of all electronic payments in the US are run today via Automated Clearing House (ACH) according to Plaid.11
Automated Clearing House is a technology that is offered by the “Clearing House,” which is a nonprofit organization. It is a network of banks that have come together to enable the movement of money interbank through the use of bank account and routing numbers. This is a batch process.
However, it isn’t the fastest mode of moving money. ACH is a batch process with defined “cutoff windows.” If you don’t post an ACH transaction before the cutoff window (specific time defined by your bank), then the transaction will not be processed until the next cutoff time.
ACH has the ability to overdraft someone, whereas cards in most cases will just decline and not cause an overdraft if the cardholder has insufficient funds.
Since funds coming from an employer are fairly reliable, versus an ACH from an individual, these neo-banks are comfortable in offering these funds to these employees on the day they receive the NACHA file, so in this case, on Wednesday versus Friday. This becomes an added benefit to banking with these neo-banks versus a traditional bank like Wells Fargo because these neo-banks make these funds available sooner.
Similarly, if Handy Randy is ready to transfer some of this money over to his checking account, it may take up to three business days for the money to post. Venmo makes these funds immediately unavailable in the Venmo app while this transfer is happening.
Venmo takes the risk for few days. Similar to currency cloud
