Payment cards are the leading payment instruments in the world. They are used to initiate over a billion card transactions worldwide every day. There are numerous types of payment cards, the most popular ones being credit cards and debit cards. You can see few examples on the image below.
Who are the main players in card transactions and what are their roles? You may think of the cardholder or the merchant that accepts the cards and that is correct. However, there are other players like the Issuer, the Acquirer and Card network whose roles are crucial as well. The purpose of this article is to present each of the key players involved in card payments transactions.
How does a payment card come into existence? It is issued by a financial institution or a credit/debit card company called the Issuer.
The issuer manufactures the card and makes it available to his client, the cardholder. In many countries, Only banks are allowed to issue payment cards. And they must comply with strict government regulations to stay in business.
The main responsibilities of the issuer are the following :
- Management of card manufacturing
- Management of the account to which the card is linked and more particularly the debits / credits related to the transactions carried out with the card. The Issuer generally holds the account linked to a debit card. For a credit card, it is rarely the case.
- Management of card limits according to the conditions agreed with the cardholder.
- Management of card disputes and chargebacks following loss or theft declared by the cardholder.
The cardholder is the consumer to whom the financial institution hands over the card it has issued. He must subscribe to a cardholder agreement which states the general conditions relating, among other things, to the delivery, use, security and renewal of the card.
In the majority of cases, the card is linked to a cardholder’s current account, also called deposit account. Note however that the cardholder may not be the holder of the current account. For example, cards used by employees which are attached to a company’s current account or a payment card used by a teenager while it is linked to the parent’s account.
It is important to note that the cardholder does not become the card owner. The card remains the property of the bank, the issuer, which may decide to take it back whenever necessary. The cardholder holds the following responsibilities (the main ones):
- Carrying of the card: the card should be carried only and only by the cardholder and she / he should know where the card is.
- Keep the PIN code confidential and do not disclose it under any circumstance
- In case of loss or theft of the card, the issuer must be informed as soon as possible, so that the card is blocked
- Liability of the cardholder up to certain amount under certain conditions: depending on the countries and regulation, the cardholder may not be refunded totally in case of fraud. We will get back to this in future articles
- Payment of fees and commissions for the use of the card
The acquisition of a payment transaction is made either with a merchant at the time of payment by the cardholder, or when the cardholder makes a withdrawal of cash from an ATM (Automated Teller Machine). To initiate the transaction, the cardholder must enter the card in the merchant’s Point-Of-Sale (POS) terminal or in a bank’s ATM. In the first case, the acquirer is in general the merchant’s bank also called acquiring bank. It provides the POS terminal to the merchant for payment acceptance. In the second case, it is the bank which owns the ATM bank used by the customer. What about the card transactions initiated on the Web, you may wonder. These transactions are acquired from the merchant’s website through online payments solutions which may be provided by the acquirer to not as we will see later.
The acquirer is therefore the bank that provides to the merchant the machines, devices or softwares that fulfill two functions: 1) allow the cardholder to initiate transactions (after introduction of his card or provision of card information) and 2) acquire and process these transactions after they are finalized.
The main responsibilities of the acquirer are as follows:
- Management of Merchant’s account (to credit after transactions processing)
- Provision, installation and maintenance of hardware (POS terminals) and software used by the merchant for payment acceptance
- Set-up and update of blocked card lists
The Merchant (also called the Acceptor)
The Merchant is the vendor, that sells goods or services to the cardholder, and accepts the card payments in exchange of goods or services. It can be a store, a restaurant, a hotel or any business. The Merchant is equipped with a POS Terminal to use in the store or the software (if it is an online store) by the acquirer, his bank in general. The merchant must comply with all rules agreed with the acquirer and ensure the regularity of card payments.
His responsibilities are the following (among others):
- Inform the customers about payment card acceptance by displaying the windows stickers with card network logos provided by the Acquirer. If there is a minimum amount for card acceptance, it should be clearly visible to the customers.
- Transmit card transaction records to the acquirer on time (There is deadline after which transactions might not processed anymore)
- Obligation to keep card transactions receipts in a safe way during a period of time
- Comply with all security rules and inform the acquirer as soon as possible if they have been compromised
- Payment of fees and commissions for the services provided by the acquirer
The Card network
You are probably familiar with one of the following brand: American Express, CUP (China UnionPay), Discover, MasterCard, JCB (Japan Credit Bureau), Visa, etc. These are names of some of the most popular card networks in the world.
All the players described above are connected to each other for carrying out payment transactions through networks operated by these entities. The network is responsible for transporting the information between the different participants for the successful processing of the card transactions. In reality, the issuer issues the card in collaboration with the card network. The same applies for the Acquirer. A bank must become member of card network (sometimes it is referred to as card scheme), in order to issue or acquire cards operating on that network. An agreement is set up between the bank and the network for mutual obligations.
The card networks have a global reach and allow cardholder to initiate transactions almost everywhere in the world. That is possible thanks to standardization and interoperability, two key concepts that will be analyzed later. Now that we know the main players, let’s focus on the card itself. Do you really know the payment card you carry in your wallet? The next article will be about the anatomy of a payment card.