Who is who in card transactions

[Brother]

I have already talked about the issuing bank and the acquiring bank more than once. Probably, it's time to figure out who all these four people are. Today we'll talk about who does what in the complex structure of the payment system.

It is complex, not in the sense of "difficult to understand", but in the sense of "consisting of many elements." Therefore, we will calmly begin to understand.

First of all, let’s separate the two important roles of banks in the processing of plastic cards.

The bank that issues the card (issues it) is the issuing bank, or, as it is now more correct to say, the issuing bank. In general, there are banks that issue cards (issue, issue), but they themselves do not service any devices for accepting cards.

The bank that provides services for accepting cards (servicing POS terminals, ATMs) is called an acquiring bank, and the business for accepting cards is called acquiring. Such a bank maintains a terminal / ATM network, services it, collects ATMs, etc. Acceptance of cards via the Internet also applies here, although the word "Internet", Internet acquiring is added to the name. Generally speaking, there are banks that do not issue any cards themselves, but do business only on acquiring.

Most often, the situation is widespread when a bank does business both by issuing cards and accepting them, i.e. a typical bank is both the issuer and the acquirer. But here a variety of options are possible, I will definitely tell you about them.

Now let's see how transactions go between them and who earns what.

1. Local card program​

Such a cumbersome name is a simple situation when a bank (more precisely, its card product) is not included in any payment network. This means that cards issued under such a card product can only be accepted in devices operated by the same bank. Let's say there is some ZhadiBank, and he issued ZhadiKarta. This card does not have any Visa, MasterCard, JCB, etc. logos, because this product does not belong to any payment network. Cards are issued to their holders, and ZhadiKarta holders can only be serviced at ATMs of ZhadiBank and in several stores where there are POS terminals from ZhadiBank. In the neighboring store, where SokhraniBank is acquiring (there are its POS terminals), they will not be able to accept ZhadiKarta, since SokhraniBank has no relationship with ZhadiBank.

In fact, local card programs are not uncommon. For example, in one of the companies where I worked, through the local card program, they implemented part of the social. package. Acquiring agreements were signed with several nearby cafes, and employees dined in these cafes by paying with a special card. Everyone is good, by the way. My employer in this case was the acquirer (but this is not the only possible way).

Everything works very simply: ZhadiKarta is inserted into the POS terminal of ZhadiBank, ZhadiBank, upon the result of the transaction, transfers funds immediately from the account of the cardholder to the account of the Trade and Service Enterprise (TSP), in which the ZhadiBank terminal is located. Since the accounts of both the merchant and the cardholder are in ZhadiBank. No intermediaries. Any commissions that are present here (including hidden ones) go entirely to ZhadiBank.

At the dawn of the development of card technologies, there was only such an option. But, obviously, it has a number of limitations. Therefore, the next step is to agree several banks among themselves in order to process each other's transactions. In fact, in a number of cases this is still done, I will tell you a little later. Let's consider this particular case for now, we will complicate things gradually.

2. Direct agreement between the issuer and the acquirer​

Let's imagine that SaveBank and ZhadiBank have agreed so that their cards can be accepted in each other's terminals. Depending on whose card is being served in whose terminal, they alternate between the issuer and the acquirer. Let's look at an example. The holder of ZhadiKarta comes to the "Black and Green" store to buy a green one. And there - what a coincidence! - the SaveBank terminal was installed. Great, you can pay. And inserts ZhadiKarta into the SaveBank terminal. From that moment on, Tristan found his Isolde. In these relations, ZhadiBank becomes an issuing bank, and SokhraniBank becomes an acquiring bank. More precisely, they, perhaps, both issue and service cards (or maybe ZhadiBank only issues, and SaveBank only serves), but in this transaction the roles are exactly that. In general, save the bank conducts the transaction, and as a result credits to the account "removed from the map . "Money is now the holder ZhadiKarty money was less, at TSP" black and green "balance increased, while SohraniBanka - reduced and SohraniBanku need to get money from ZhadiBanka Therefore.." removed from the map "the money I wrote in quotes ...

Basically, ZhadiBank can have a deposit in SokhraniBank (deposit on a special account), and then SokhraniBank will automatically write off this amount in its favor. By the way, quite a viable option. Or it may be that ZhadiBank, at the request of SokhraniBank, transfers money to him through the RCC. There can be generally different interactions; I am not very well versed in accounting and economics, but I will write technically possible options somehow in a separate post.

When the holder of SaveCard comes to the Naftalin perfume shop, where ZhadiBank's POS terminals are installed, in the SaveBank transaction, it plays the role of the issuer, and in ZhadiBank - the acquirer. And everything happens as in the previous case, but Tristan and Isolde change places.

If there are any commissions under the agreement, then SaveBank and ZhadiBank share the income from them, as agreed.

If you insert SaveCard into the SohraniBank terminal, or ZhadiKarta into the ZhadiBank terminal, then the situation comes down to the first case, the interaction will be like a local card program (despite the fact that both banks are part of their own network, and maybe also to the international payment network). Those. in this case, no interaction with outside banks or organizations is required. The most profitable case for the bank, and therefore often banks make all sorts of loyalty programs in this case in order to stimulate such transactions.

V In the next part (and maybe parts), we will consider in detail the situation where the payment system is present, and what other market participants are.

V In the first part, we examined trivial cases when a bank itself accepts its own cards, and when there are two banks that have agreed among themselves to accept each other's cards.

Historically, this is how everything developed. At some point, it became clear that these mechanisms were not enough for normal operation. And the first card network appeared, from which the modern Visa and MasterCard were then born.

Let's now see how a purchase takes place in a situation where there is a payment system.

The owner of ZhadiKarta, Mr. Chichikov, comes to the Alpy store to buy a cubic meter of air. He wants to pay with JadiKarta. And in the "Alps" there is a bank terminal ITD-24, with which ZhadiBank has no direct contractual relations. But both ZhadiBank and ITD-24 are part of the Zhiza payment network and have this promoted logo on the plastic sides of their credit cards. There is a sticker on the doors of the "Alp" that the store accepts "Giza" cards.

Therefore, the buyer of a cubic meter calmly hands the cashier a card with two logos ("Zhiza" and "ZhadiBank"), and the card is inserted into the ITD-24 terminal.

The processing of bank ITD-24 receives a transaction request for a card with an unfamiliar bank BIN (Bank Identifier Number - the first 4-6 digits of the card number). The bank realizes that the card is not his. But BIN belongs to the Zhiza payment network. A member of which is the ITD-24 itself. Great, we know what to do with this transaction.

Each member of the Zhiza payment network has a special dedicated communication channel with the processing of the payment network. And through this channel, ITD-24 forwards the request to Zhiza. Zhiza looks at this request and sees that she sold the BIN card to ZhadiBank, which means that ZhadiBank must authorize the payment.

Zhiza's processing forwards the request to ZhadiBank's processing. ZhadiBank sees: oh, this is my card. It belongs to the citizen Chichikov, who has a corresponding account. And there is just enough money in the account. ZhadiBank blocks the required amount on the account (makes a hold, hold). And it forms the answer that there is enough money (in other words, it authorizes the transaction). This answer is sent to Zhiza.

Zhiza sends him to processing ITD-24, which has been waiting for this answer for a long time. So, now ITD-24 sees: ZhadiBank has confirmed the possibility of payment, which means there will be money. ITD-24 sends confirmation to its terminal, which still has JadiKarta installed. The terminal happily prints a confirmation receipt. The payment actually took place. A satisfied customer takes away his cubic meter of air, and our actors move on to the second act.

After ITD-24 received confirmation through Zhiza from ZhadiBank, and through its Alpam terminal confirmed the payment, ITD-24 must credit the purchase amount to Alp's account (transfer the buyer's money to the seller). Thus, the buyer of a cubic meter remains with the goods, the Alps with the proceeds, and between the banks it is still necessary to make mutual settlements.

I am now talking about the so-called. Dual-message transaction that occurs in two stages. The first stage is everything that I described, and in the second act settlements take place between ITD-24 and ZhadiBank. They happen again, not directly, but through Zhiza. First - the exchange of the second phase of messages (clearing, clearing). And then - already mutual settlements through the special settlement bank of Zhiza.

The fact is that Zhiza is a payment system (payment network), and its technical task is to forward transactions, route them. She is not involved in moving money. The money is transferred by the appropriate bank (owned by Giza). ITD-24 and ZhadiBank have corresponding accounts in this Jiza-bank, on which there are corresponding deposits. Here, ordinary mutual settlements take place, as if there were no card and card transaction, but simply a transfer from one account to another. As with ordinary transfers through the RCC (settlement and cash center, this is a branch of the Central Bank).

But for this settlement to occur, a second phase of the transaction, clearing, is required.

At the end of the shift, the cashier "Alp" closes the shift (according to the regulations previously agreed with ITD-24). And ITD-24 (in this case, he is an acquirer) forms a batch of messages, which he sends to Zhiza. The Alps sold a lot of cubic meters of alpine air using the cards of the Giza payment system, and the cards of various banks were processed during the day. Now we need to set requirements to all contractors. Zhiza parses a bunch of these requests and sends them to issuing banks. In our case, ZhadiBank receives a demand (presentation, presentment) for one transaction (per cubic meter of Alpine air purchased using ZadiKarta). He matches the transaction with the primary one and deducts the previously held funds from his client's account. Everything, with card transactions, that's all, further the usual banking on non-cash settlements (through Jiza-Bank). By the way, the write-off on the presentation is non-authoritative (the consent of the bank is not required), these are the terms of the contract with Zhiza.

In the next part, I plan to talk about what a single-message transaction is, as well as who and how earns on all this.

 

[Brother]

Last time we talked about how transactions go when paying with a card. There were two stages, and therefore it was called dual-message. When we insert a card into an ATM, everything goes a little differently. In this case, a single-message transaction occurs.

Usually any sane person is looking for "their" ATM in order to withdraw cash or see the balance. In our age of communication, looking at the balance through an ATM is, of course, a strange idea, because there is a mobile bank and an Internet bank ... Well, who knows. So, if Mr. Chichikov owns ZhadiKarta, then to withdraw cash or view the balance, or for any other operations with the card, he prefers to find an ATM of ZhadiBank. There are two reasons for this. One is significant, the other is insignificant. The insignificant one is that in ATMs of other banks there may not be any operations on the JadiKarta. Significant is, as usual, in the commissions, more precisely, in their lot.

Why everything is arranged this way - today we will figure it out.

When ZhadiKarta is inserted into the ATM of ZhadiBank, neither the Zhiza payment system nor any other bank is needed. There is no one in this universe. Only ZhadiBank, and ZhadiBank and ZhadiKarta revolving around it in orbit in absolute emptiness. The commission can be any, and all of it will go exclusively to ZhadiBank.

In practice, most adequate banks make zero withdrawal fees. Majority. Adequate. There are also inadequate ones, I personally know this. But more about this funny specimen later.

In this case, a ZhadiKarta is inserted into the ATM of ZhadiBank, and ZhadiBank directly interacts with both devices (in general, a ZhadiKarta is still a chip, and this is already a device). This means that ATM and card accounts are located within the same financial institution (ZhadiBank). (Yes, indeed, the ATM has its own account (internal), and the ATM money is recorded on it). And about the owner of ZhadiKarta, ZhadiBank knows a lot: where he lives, and how often he uses the card, and where he uses it, and how often money is credited, and passport data, etc. etc. (oh yeah, well, the account balance as well).

Hence, it turns out that, firstly, ZhadiBank trusts this card more (in some cases this is important). Secondly, it can provide the most complete set of services. Well, I do not know. For example, in the framework of an ATM scenario, it is possible to use some kind of loyalty program, or manage accounts, or perform some kind of internal operation (for example, a payment in favor of a vendor with a minimum commission), etc. Recently, banks have received a very unpleasant surprise in the face of a large number of competitors who have unexpectedly appeared who do not have "noble roots", do not like banking conservatism and thoroughness, try more (fi!) To please the client, and so on. These are mobile operators, and electronic money, and then there are cryptocurrencies ... In general, banks groaned, got up from their fashionable leather chairs and also ran slightly after the client, inventing various services on the go. So at the ATM there is a chance to see a very spreading menu with many tempting items. Just stay with us!

Hence, there are two reasons why the holder of ZhadiKarta tries to use ZhadiBank ATMs: because he expects to see minimal (zero) commissions there, and to receive the maximum possible service. Well, now we understand why relatives of ZhadiBank ATMs can provide all these conveniences. And now...

Someone else's ATM appears​

Usually, of course, this is a stressful situation - that there is no native ATM within reach. But still, it does not happen so rarely. For example, you find yourself abroad, or in a city where your native ZhadiBank's ATM (in which your employer has a salary project) simply does not exist. Or there is another option: ZhadiBank is part of a partner network in which several other banks participate. And the partners agreed on the minimum (zero) commissions in their acquiring network (i.e. in the network of their ATMs and terminals). By the way, the latter option is more and more common. To the extent that there are banks that do not have a single ATM of their own. But the division of labor in banking deserves a separate post, as I understand it now.

In general, Mr. Chichikov approaches a BurzhuyBank ATM in Turkey and wants to withdraw some cash. Inserts JadiKarta into the ATM. The ATM sees that the card is not a local one, not a Bourgeois Bank, and starts the script on a different branch, for other people's cards, where the service is more scarce. BourgeoisBank is not evil, it just really does not know anything about loyalty programs and additional services of ZhadiBank. He may have never heard of ZhadiBank ...

In general, they entered the amount, clicked confirmation - and .... Our transaction flew through the cities and towns. First, as usual, to the processing of Bourgeois Bank, which sees that the card is not his, but from Zhiza, and therefore forwards the transaction to Zhiza. Zhiza sees that the BIN of the card belongs to ZhadiBank and forwards the transaction there. JadiBank sees: his client is served at an ATM of BurzhuiBank in Turkey, and he has enough money on his account. The transaction is authorized and the authorization message is sent back to Zhiza, which transfers it to the BurzhuyBank, who sends a confirmation to his ATM, where our JadiKarta holder stands and waits for the ATM to rustle with dispensers. And here it is, the beautiful sound of cash being counted, and the coveted stack of bills ...

In this case, there are no third parties, there are only two banks that communicate with each other through the Zhiza payment system. In this case, there are no two phases, as was the case with a purchase in someone else's terminal. There is only one phase. Upon the arrival of a request for authorization, ZhadiBank immediately (without preliminary blocking, without holding and without subsequent clearing) debits the amount from the cardholder's account. Therefore, such a transaction is called single-message.

As a result, of course, when the time for mutual settlements comes, there will be invoices from Zhiza and crediting to the Bourgeois Bank account, as if it were a regular money transfer between banks, without a card. Everything is the same here as with a purchase at a POS terminal.

The difference between this case and the purchase at the terminal is that there is a certain third party (not taking into account the payment system) - namely, the merchant, LLC "Alpy" in our previous example. For everyone's pleasure, it is necessary that the merchant also give the go-ahead that everything is in order. Therefore, one phase seems to be not enough. In addition, there is also such an interesting thing as an offline transaction (carried out without a direct connection of the terminal to the bank), which cannot be done at all at once. In general, this is why it is more convenient for the industry to work with two-phase dual-message. But in the case discussed above, there are only two banks and Zhiza between them. There are no merchants with their business logic and separate regulations. Therefore, the gentlemen agree among themselves immediately.

PS About not quite adequate banks. I heard a very interesting story about a bank where I was a forced client for a long time. Once I tried to withdraw money, the transaction refused, the money is not enough. And in the Internet bank I saw a strange commission. It turned out that it was withdrawn because I was trying to withdraw an amount exceeding the balance. What the hell is this!
And the story is entertaining. This bank is a pocket bank for a very large local business. Under various pretexts and pressure, workers were to be served only in this bank. And in the conditions of its pocket, this bank established ... well, not predatory, but very unfriendly conditions and commissions. For example, it was possible to view the balance for free at an ATM only once a month. And people wanted it more often. Well, hard workers and contrived. You go to an ATM and try to withdraw an amount about the size of your expected salary. If the transaction did not go through, it means that the money has not yet arrived. Great, free way to probe your card balance. Well, the bank figured out this thing, and ... introduced a commission for a lack of funds !! Whether you like it or not, you won't be able to see if the money came or not.

 

[BlackMoneyWorld]

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