Online Payment Services and the Role of Banks

1. Online Payment Services and the Role of Banks

2. Payment service providers represent an essential link in the global financial chain. However, most consumers never give them a second thought. Payment service providers connect merchants to the broader financial system so that they can accept debit and credit card payments from their customers. They also make payments fast, secure, and easy for the consumer and the merchant.

4. Who are payment processors?

5. When it comes to processing electronic payment transactions, a payment processor acts as the mediator between consumers, card brand networks, merchants, and financial institutions. To ensure that merchants get paid, payment processors handle the entire payment. The transfer of funds from the customer’s account to the merchant’s account is facilitated by payment service provider’s right from authorization to settlement.

6. What is their mode of operation?

7. The merchant pays the payment service provider, who, in turn, acts on behalf of the merchant. While some payment service providers provide comprehensive consultation, others offer just the basics. Payment services are differentiated by companion offerings such as security, merchant financing, and fraud protection services beyond their commodity service provision. Any business that accepts credit cards essentially needs online payment services for smooth operations.

8. How do the card brand networks fit in?

10. In the payment ecosystem, card brand networks are the most visible actors. Between an issuing bank and a payment service provider, it is card brand networks that act as the intermediary. There are two major types of card networks: PIN-less debit card networks such as NYCE, Interlink, and Cirrus; credit card associations that include Visa, Mastercard, Discover, and American Express.

11. What is an issuing bank?

12. A credit union, financial institution, or a bank can be referred to as an issuing bank. On behalf of card brand networks, the issuing bank provides credit and debit cards to the consumer. Based on the customer’s available funds, amongst other factors, the issuer is responsible for approving or declining each transaction. For each transaction, they are responsible for ultimately delivering funds to the merchant. Often co-branding is done by issuing banks with one of the card brand networks.

13. What roles do banks play?

14. In a payment transaction, the acquiring banks and issuing banks work closely together. Credit or debit cards are issued to the consumer by the issuing bank. On behalf of a merchant, acquiring bank processes credit and debit payments. In the form of a merchant account, a merchant enters into a contract with the acquiring bank. The acquiring bank ensures the merchant receives payment for payment card activity minus interchange and other fees by exchanging funds with the issuing banks.

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