A payment service provider explained and the players involved
It seems simple enough at first. You want to start accepting credit and debit cards at your business. You may even be interested in accepting online payments. Then, you remember that EMV chip cards are becoming more commonplace, and mobile payments are gaining traction. And with the popularity of subscription services, you are considering how to facilitate recurring payments. On top of all this, you want to ensure all payment methods are secure. Before you know it, accepting card payments doesn’t seem so simple anymore. That is, until you engage a payment service provider.
Also commonly known as a merchant services provider, a payment service provider helps merchants accept credit and debit cards. Payment service providers bring together everything (and everyone) involved in a payment transaction to provide a seamless experience for merchants and their customers.
It might not be obvious on the surface, but many parties are involved behind the scenes of processing a single payment transaction. Think of it as a theatrical production with a cast of characters and the payment service provider as the director. Let’s take a look.
Usually a financial institution, bank, or credit union, the card issuer provides the credit or debit card to the consumer on behalf of the card brand networks (see below). The issuer is responsible for approving or declining the transaction request, based on the customer’s predetermined line of credit. (Note that Discover and American Express are the exceptions– they act as both the card network and the issuing bank.)
Card brand network
The card brand network acts as the intermediary between an acquirer (or processor) and an issuer. There are two types of card networks: credit card associations that include Visa, MasterCard, Discover, Amex, etc., and PIN-less debit card networks that include NYCE, PULSE, Maestro, Interlink, Cirrus, etc.
A payment processor acts as the mediator between merchants and the financial institutions involved in processing a payment transaction. Processors handle the entire payment transaction, from authorization to settlement, to ensure merchants get paid. They facilitate the transfer of funds from customers’ accounts to merchants’ accounts. Payment processors can be banks or non-banks, and can have their own sales force, or work with ISOs (see below) to acquire merchant customers. Payment processors vary widely in their offerings. Some offer just the basics, while others provide comprehensive consultation and support services.
When choosing a payment processor, merchants are advised to consider a variety of factors including implementation assistance, customer service, security offerings, ability to accommodate current systems and future growth, pricing and fees, and more. Not all payment processors are the same, so it’s important for merchants to do their research and be informed.
Independent Sales Organization (ISO)
An ISO is a third-party company that an acquirer contracts with to procure new merchant relationships. ISOs resell products and services from one or more payment processors, and typically receive commission from the processors for which they sign up merchants.
Agent, dealer, value added reseller
Payment processing agents, dealers, and value added resellers (VARs) work in partnership with one or more payment processors to provide payment products and services to merchants. VARs offer additional features that complement payment processing such as point of sale software and hardware, business management software, and professional services such as consultation, implementation, employee training, and customer service. Like processors, VARs vary in their offerings, and can be a trusted resource for merchants looking for POS hardware, software, and payment processing services.
Issuing banks and acquiring banks work closely together in a payment transaction. As mentioned above, the issuing bank issues credit or debit cards to consumers. The acquiring bank, also known as a merchant bank or acquirer, processes credit and debit payments on behalf of a merchant. A merchant enters into a contract with the acquiring bank in the form of a merchant account. The acquiring bank exchanges funds with the issuing banks and ensures the merchant receives payment for payment card activity, minus interchange and other fees. Many acquiring banks use large third-party payment processors to facilitate the transactions behind the scenes.
Merchants have many payment device options to choose from including stand-alone terminals, smart terminals, integrated point of sale systems, tablets, web integrations to enable online payments, and card readers to enable mobile payments for smartphones.
Point of sale software and hardware is created by developers, who are usually industry specific (e.g. retail, restaurant), or system specific (e.g. tablet, laptop, cloud-based, mobile). Some developers offer products that span several industries as well as device types. Developers often partner with payment processing providers like Vantiv, to integrate processing capability directly into their payment platform, adding value to the offering.
As you can see, many different parties are involved in processing credit and debit card payments. For business owners evaluating merchant services offerings, the most important relationships to consider are with a payment processor and an acquiring bank. By engaging a leading payment processor and technology provider like Vantiv, you have instant access to all the players that facilitate merchant services. Vantiv’s long-standing industry relationships help ensure you are working with the providers that are right for your business, without the hassle of researching and choosing them by yourself. Contact us to learn how your business can enjoy seamless commerce and processing now and into the future.