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Insights and Expertise

States in the foreseeable future.

Legal ease: Issuers earn the bulk of all fees in the cards and payment
business. First, the issuers earn interest on unpaid
balances. Second, issuers earn a majority of payment
processing interchange fees paid by merchants to receive
payment from cards.

Payment processing Ordinary ISOs and their sales teams don’t often spend a
lot of time thinking about issuers. ISOs should be very
appreciative of their "cousins" in the issuing business.
family tree: A glossary If there weren’t millions of cards issued to consumers,
ISOs would not earn any residuals for helping merchants
of participants acquire payment from those cards.
Some payments businesses get involved in the issuing
By Adam Atlas business by operating or selling card programs to
businesses or individuals. The revenue from that business
Attorney at Law consists of the issuer sharing in their interchange (paid by
merchants) on card transactions.
ne of the challenges of getting involved in
acquiring or payment processing is soaking Acquirer
up all the jargon. I am always mindful of over-
O using jargon, because it changes over time, An acquirer is a bank or other financial institution that
and it does not always mean the same thing to everyone. has a license from a payment network to acquire funds
for merchants from cards. In the United States, acquirers
It might help you to hear about several key players in are all banks and they usually engage in various kinds
acquiring and payment processing and perhaps pick up of banking services, acquiring being only one of them.
some of our industry's jargon along the way. It is noteworthy that banking law in the State of Georgia
permits for the creation of Merchant Acquirer Limited
Payment network Purpose Banks (MALPB), meaning a bank that exists for
the sole purpose of acquiring. As of this writing, there
Traditionally, a payment network, such as Visa, Mastercard haven’t been any MALPBs incorporated in Georgia.
or American Express, often serves two key roles. First, it
operates a digital network over which transactions are Every card transaction processed in the United States goes
communicated and processed between issuers, acquirers through an acquiring bank. Directly or indirectly, every
and merchants. Second, the network advertises itself so ISO depends on an acquiring bank for its livelihood. If you
that it becomes commonly accepted by all participants scroll through disclosure on ISO websites, you are likely
including consumers, merchants, issuers and acquirers. to find the payment-network-rule-mandated disclosure
about the name of their sponsor bank (that is, acquiring
If a network is unknown, consumers are less likely to carry bank). While acquiring banks are necessary in payment
cards bearing its name, and merchants are less likely to processing of cards, they are rarely involved in the day-
make the effort to accept payments from that network. The to-day of soliciting and closing merchant processing
term "network effects" is especially true of the traditional agreements. That activity is outsourced to processors,
payment networks. They really have succeeded because ISOs and their agents.
they have been used a lot, and the more they are used, the
more they become successful in attracting new users. Processor
Networks used to be called "associations." They used to The term "processor" has a number of meanings. It
be not-for-profit associations between banks that existed usually refers to a large business that has taken on the
for the main purpose of allowing transactions to occur responsibility of administering the acquiring activity of
between thousands of issuing and acquiring banks. The a bank.
networks are now for-profit, and they are slowly evolving
to be more than just service providers to banks. These include marketing merchant services, submitting
the authorization request to an issuer through a payment
Issuer network, capturing authorizations from the issuers,
communicating the same to merchants, and then
Issuers are banks and other financial institutions that providing settlement instructions to the acquiring bank
issue cards to cardholders. In the United States, all issuers for card transactions processed. Absent the outsourcing
are banks, but in the UK and Europe there are non-bank of risk to an ISO, processors will often assume the risk of
card issuers, and that concept might come to the United chargebacks and other losses by merchants.
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