The payments industry is a confusing place. Everywhere you turn, you are met by terms, phrases, and definitions that can leave you scratching your head. Innovation is constant, making it that much more challenging to keep up with the Joneses of Payments.
However, when it comes to the key players that make it possible for consumers and businesses to exchange money for goods and services, there are a few staples. The hard part is understanding what these players do, because, at first glance, you may think, "what is the difference?!".
Well, that is what we are here to tell you. The card networks, card-issuing banks, acquiring banks, payment gateways, payment service providers (PSP), and independent sales organizations (ISO) that work behind the scenes have been the stable and constant framework of the payments landscape.
Who Are These Key Players?
The Card Brands and Networks
The backbone of the payment industry is the card brands - Visa, Mastercard, American Express, and Discover - they are responsible for the networks that connect all the players. They continuously work behind the scenes to control where credit cards are accepted and oversee transactions between the businesses and credit card issuers.
The card brands are also responsible for creating and enforcing the rules that govern credit card processing, aptly named the Payment Card Industry Data Security Standard, or PCI for short. These rules ensure that anyone who handles credit card information does so with the utmost security.
While the card brands provide the networks and security standards, they do not actually issue credit cards. That is where the issuing banks come in. Issuing banks are financial institutions such as Bank of America or Royal Bank of Canada that provide credit cards to consumers on behalf of the card brands.
The issuing bank is responsible for financially backing the transactions made by the consumer or cardholder. Providing funds for the cardholder carries inherent risk, which is why issuing banks charge a fee for every transaction. The issuing bank acts as the middleman between the card network and the acquiring bank to determine whether the transaction will be approved or declined.
As the issuing bank is the consumers' bank, the acquiring bank is the business's bank. These financial institutions, such as Wells Fargo and First Data, accept and process credit and debit card transactions on behalf of the business.
The acquiring bank enters into a contract with the business to provide them with payment acceptance and processing. The business and acquirer agree that the acquirer will settle the daily card activities balance into the business' bank account, minus any reversals, interchange fees, and acquiring fees.
Acquiring banks set up the business with a merchant account and are responsible for the financial risk associated with processing credit cards and secure transmission of data.
The "All-Powerful" Payment Gateway
Where would e-commerce be without the payment gateway? This crucial piece of technology is responsible for sending consumer payment information from a purchase to the businesses acquiring bank - and does so in the safest way possible.
When an online purchase is made, the payment gateway relays the information from the business to the acquiring and issuing banks using data encryption. In just milliseconds, the payment gateway validates the consumer's credit card, ensures the funds are available, and sends those funds to the business's account.
Payment Service Providers
Now here is where things can get a little tricky. Payment Service Providers (PSP) provide the business with a merchant account similar to the acquirer; however, PSP's do not provide the financial backing for the business. That part is still reserved for the acquirer. PSPs provide the business with a merchant account, connect them to a payment gateway, and facilitate payment processing.
The PSP may also be responsible for providing the services businesses need to accept payments, such as terminals or digital checkouts.
Independent Sales Organizations
Independent sales organizations (ISO) are third-party payment processing companies authorized to handle merchant accounts and act as intermediaries between businesses and their banks.
ISO's have unique relationships with financial institutions such as Wells Fargo and First Data that essentially allow them to resell their services. The banks provide the financial backing while the ISO is responsible for handling the business activities, such as setting up the merchant account, providing the payment technology, and assisting with the business's processing needs.
As you can see, there is a lot at play here in the payments industry. At this point, you may be wondering, "who are these gateways, PSPs, and ISOs you speak of?". You may have thought nothing in payments is simple; however, there is a company that can do all three.
What is Bambora?
The Bank Neutral Gateway
Now that you know what a gateway is, we are doubling down on that knowledge by introducing a new term, a bank neutral or bank agnostic gateway. What does this mean?
The gateway acts as the piece of technology that sends payment information from the consumer's bank to the business's bank; the thing is there could be hundreds of banking options for businesses to choose. For businesses to ensure they can accept payments from virtually any bank in North America, a bank neutral payment gateway is a clear choice.
Bambora's gateway was designed for exactly that reason - inclusivity for all businesses. It also works with any acquiring bank in North America, making it simple for businesses with an existing merchant account to plug into our gateway.
Your One-Stop Payment Shop
As a PSP, Bambora can set up businesses with everything they need to start accepting payments. We can connect businesses with a gateway only account, and off they go. Or we can set them up with a gateway and merchant account and all the tools they need to accept payments.
Bambora also acts as the merchant of record (MoR). We are authorized and held liable by financial institutions to process credit and debit card transactions on behalf of a business. As the MoR for a business, we are responsible for processing all payments, managing processing fees, and maintaining PCI compliance.
Better Processing For Large-Volume Businesses
Larger organizations often have more sophisticated payment needs and pricing options. Working with Bambora at the ISO level can get payment processing up and running for these organizations' clients. The ISO option is perfect for growing businesses, as the payment tools Bambora offers are designed to scale as they grow. However, more due diligence is required to set the business up with an acquiring bank at this level.
If you have stuck with us this far, hopefully, we have cleared up who you need to know in the complicated payments space, and you can see just how interconnected everything is. Money is constantly moving throughout our society - transferring from consumers to businesses. How it moves and who's involved often leaves people scratching their heads.
Understanding who the key players are and why they are essential can help you make the right decisions for your business, or at least inform you of who you need to go to for what. If you are still unsure, the good news is that Bambora has payment processing options for any size business, and we cater to a vast array of industries. Contact our experts to learn how payments can help you grow your business.