Becoming a processor
I work in the merchant department of a bank. ... We partner with a national processor, and I'd like to know how we could become our own processor. If you could give me some information on how and who to contact to explore this, I'd appreciate it.
We asked Doug Bolam of Planet Group Inc., a company that has experience in this area, for advice. His reply is paraphrased as follows:
For most bankcard transactions in the United States, processors are the entities that use the Visa Inc. and MasterCard Worldwide networks to offer technology and services to facilitate the processing of credit card transactions on behalf of the card issuers and the acquirers of credit card transactions.
Issuers are public and private companies and financial institutions that offer card-accessed lines of credit to consumers and businesses. Acquirers are federally insured financial institutions authorized by the major card brands to connect merchants to their authorization and settlement systems.
The first step to becoming a processor is to obtain sponsorship from an acquirer. To be able to acquire sales transactions from merchants and collect payments through the Visa and MasterCard systems, the bank must first be approved by the card brands. Said approval and subsequent sponsorship entail the first step to gaining access to the card networks.
The acquirer provides a bank identification number to the processor under sponsorship, under which all transactions done by the processor for the acquirer are submitted. The sponsorship is generally contingent on several aspects of the processor: proof of financial stability over a consistent period of time through financial audits, SAS 70 type I and type II audits and Payment Card Industry Data Security Standard compliance audits, to name a few.
A second step is to provide the technology and business infrastructure to service customers. Access to the Visa network is granted through the use of a Visa Direct Exchange device. This is a set of hardware and communication lines provided and managed by Visa over which transactions move through the network. MasterCard provides a set of similar hardware called a MasterCard Interface Processor.
Other functions needed to provide a full set of processing services include merchant boarding and underwriting, risk management, customer service, merchant maintenance, merchant account management, full lifecycle transaction processing - from authorization to clearing and settlement to dispute management - statement generation, and reporting services.
Migration to become a full-service processor can be challenging. Consultancies exist that specialize in assisting companies with this transition, including help with software licensing to address the core technology needs of entities that have resold services of large, established processors and are now positioned to provide those services on their own.
Consultants can also assist with organizational and structural changes, software to handle full-service merchant accounting and transaction lifecycle management, products to tackle business process management for risk and underwriting, as well as secure means of corresponding with merchants.
I hope this has given you a sense of what becoming a processor entails. If you would like further information, Doug has graciously offered to help. Contact him at firstname.lastname@example.org.
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