Chapter Five: The Role of the Payment Service Provider

The Basics of Processing a Payment

In its most common and basic form, payment processing occurs in a ‘4 party model’. The 4 parties are:

i) The Customer (or the traveller in transit) – purchaser of the services

ii) Issuing Bank (Customer’s Bank) – issuer of the payment card

iii) The Merchant (Transit Operator) – seller of the good or service.

iv) Acquiring Bank (Merchant’s Bank) – responsible for processing the transaction

Acquiring banks process payments for merchants. After the customer either taps their card (‘card present’ transaction) or submits their payment card details online (‘card not-present’ transaction), the acquirer initiates a request to authorise the payment. When the transaction is authorised, the acquirer retrieves the funds. Acquirers must be licensed and regulated financial institutions that can securely handle customer funds.

Some examples of Acquirers are: Elavon, Rapyd, WorldPay and Adyen.

Payment processing involves complex and intricate relays between the Issuing Bank and the Acquirer for authorisation and settlement. It is the Card Networks, like Visa, Mastercard, Amex and Discover, who licence the ‘‘payment rails’ (or scheme) by which the Banks communicate with each other to authorise and settle transactions. The card networks specify the various rules and requirements to ensure card transactions are processed reliably and securely across the world.

Where does the Payment Gateway or PSP come in?

Acquiring banks are large global regulated financial institutions. Their strength is in reliably processing very large volumes of transactions for tens of thousands of Merchants, globally…