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CMSPI – IAC State of the Industry Report
CMSPI – IAC State of the Industry Report
Section 1– An Overview of Payments Section 1.1 – A Model of Card Payments The majority of payments in many countries are made via card (see Section 4.1) and as a result this paper will primarily focus on card payments. Card payments fall into two distinct categories, each with their own unique set-ups and merchant fee structures: four-party and three-party card networks. Section 1.1.1 – Four-Party Card Networks The four parties in the Four-Party Card Network model are consumers, issuers, merchants and acquirers. Merchants typically interact directly only with their customers and their card acquirer – they generally do not directly interact with networks or issuers. Card networks usually act as “referees” in the four-party system by sending transaction information between issuers and acquirers and creating network rules for all participants in the system. The figure below shows how the four parties interact in a typical transaction.
WHO ARE THE KEY PLAYERS? An acquirer, also known as a ‘merchant acquiring bank’ or a card processor, is a bank or financial institution that manages the technical acceptance of payment cards for the merchant and ensures that funds from the cardholder are transferred to the merchant’s account. The issuer, also called the ‘cardholder’s issuing bank’, is typically a bank, credit union, or financial institution that supplies a consumer with a payment card to facilitate card transactions and represents the customer in those transactions. A card network, also known as a card scheme, such as Visa or Mastercard, acts as an intermediary that enables communication and transaction processing between the issuer and the acquirer. These networks set the rules and standards for transaction authorization and facilitate the secure transfer of funds between parties.
Gateway
Network
Merchant
Card Acquirer
Card Issuer
Consumer
Gateway Fees, Acquirer Fees, Network Fees, Interchange Fees
Network Fees, Interchange Fees (passed through to merchant)
Network Fees, Rewards/Cashback
Pays
Account Fees
Interchange Fees, Account Fees
Receives
Rewards/Cashback
Gateway Fees
Acquirer Fees
Network Fees
Sets the Level Of
Network Fees, Inerchange Fees
Gateway Fees
Acquirer Fees
Figure 1.2 – The roles of key stakeholders in the four-party card system
Figure 1.1 – Four-Party Card Network Model
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