July 3, 2012

Payments Industry Players

Recently, we saw a payments industry Web site with a glossary more than 19 pages long. When it takes 19 pages just to explain the words you need to know before you can begin to figure out how the industry works, you know that payment processing has developed a language all its own. Today, we want to break down some of the complexity and help you figure out who the major players in payment processing are and what they do for merchants.

ISO (Independent Sales Organization) – Visa coined the term ISO to describe the organizations that act as an extended sales force for merchant banks. ISOs sell and manage merchant accounts on behalf of one or more merchant banks. While most are helpful and honest, some ISOs are quick to offer low contracted rates to tie a merchant in before they slowly start adding fees and downgrade fines that cost the merchant more and more (what we call “rate creep”).

MSP (Member Service Provider/Merchant Services Provider) – An MSP is MasterCard’s answer to Visa’s ISO. Their functions are identical.

Payment Gateway – Payment gateways sit between the merchant and their processor of choice. They are called gateways because they take inputs from a variety of applications and route them to the appropriate bank or processor. Originally, gateways were neutral organizations, but over the years most have been purchased by banks or processors. (Don’t worry, not us!)

Today, Shift4 is the largest and possibly the only neutral gateway remaining in existence. The beauty of a neutral gateway is that it not only facilitates the transfer of information between these different groups, it also makes it possible for merchants to switch their bank or processor at will. This ability to switch forces banks to remain competitive and keeps the merchant in control. Shift4 is a gateway but we are so much more than that, which is why we’re often referred to as a Gateway +.

Processor – There are two processors involved in every credit card transaction: a front-end processor and a back-end processor.

Front-end processors handle the upfront authorization of a credit card transaction. They have connectivity to all of the card associations and route transactions to the appropriate network for authorization. The front-end processor is the merchant’s point of connectivity for the authorization and settlement of transactions.
When a merchant settles or submits a batch, it is sent to the front-end processor, who then routes the batch to its back-end processor.

Back-end processors receive settlement batches from the front-end processor. Transactions from all merchants are grouped together according to Issuing Bank and submitted to the appropriate Issuing Bank on a scheduled timeframe.

Merchant Bank – This is literally the merchant’s bank. It’s also often called the Acquiring Bank.

Issuing Bank – This is the bank that issues the credit/debit card to the consumer.

PCI Council – According to their Web site, “the PCI Security Standards Council is an open global forum, launched in 2006, that is responsible for the development, management, education, and awareness of the PCI Security Standards.” Basically, it started out as an industry think tank aimed at standardizing card data security but it has fallen far short of its original purpose.

Card Brands – Visa, MasterCard, American Express, Discover, etc. These organizations make the rules regarding the acceptance and use of credit cards. These rules include security regulations, data requirements, and interchange rates.