A Simplified View on Credit Payments

Understanding how Credit Payments work

Ever wondered why it only takes a few seconds for your credit card or Paypal payment to be completed? The entire payment process may seem simple, but what happens in this short time may amaze you. Here is an overview of how your credit payment is processed 5 seconds after swiping your credit card at a checkout counter or confirming your Paypal payment on Lazada.

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Definition of Key Terms

  1. Merchant Shop – A commerce shop that is offering and selling products to customers
  2. Merchant Acquirer – Acquiring Bank that processes credit card transactions and transfers all transactions to the Card Issuing Banks
  3. Card Networks – Acts as an intermediary between Merchant Acquirer and Card Issuing bank to authorize credit card transactions (e.g. Visa, MasterCard, UnionPay)
  4. Card Issuing Bank – Bank that issues credit cards to customers on behalf of Card Networks

 

a) Paying for your item

When a customer like Ben wants to pay for a shirt that costs $100, he swipes his credit card in an Electronic Draft Capture (EDC) machine at the Merchant Shop counter and all the transaction information linked to the credit card is captured. While shopping online on Lazada, Ben can pay for the same shirt using a payment gateway like PayPal that similarly captures the transaction information online.

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b) Processing your payment

At the Merchant Shop, the checkout machine sends Ben’s transaction information to the Merchant Acquirer. For an online shop, the payment gateway Paypal encrypts Ben’s transaction information, such as his credit card number, into a randomly generated 40 character alphanumeric token and sends this encrypted information to the payment processor used by the Merchant Acquirer.

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c) Approving your payment

After checking that your bank account is valid, the Merchant Acquirer forwards the transaction information to the Card Networks (e.g. MasterCard) and then to Ben’s Card Issuing bank to authorize the transaction. The Card Issuing Bank approves the transaction and sends an authorization code to the Merchant Acquirer, who then gives the approval to the Merchant Shop to sell the item to Ben. For an online shop, the payment processor used by the Merchant Acquirer forwards an authorization code to the payment gateway, who then transmits the authorization to the website to process the payment for Ben online.

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d) Closing time at the end of the day

The Merchant Shop sends all authorized transactions for that day in a batch to the Merchant Acquirer, in a process known as Batching. The Merchant Acquirer then sends this batch of authorized transactions through the Card Network, to request payment from the Card Issuing Bank, in a process known as Clearing. The Card Issuing bank and Card Network subtract their own share of the Credit interchange fee and transfer the remaining amount of money paid by Ben from his bank account to the merchant acquirer. Lastly, the Merchant Acquirer subtracts its own processing fee that covers the cost of processing credit cards for the Merchant shop and pays back the remaining amount subtracted from Ben’s bank account to the Merchant Shop.

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e) You get billed

Ben is subsequently billed $100 by the Card Issuing bank.

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Great! So this is the entire payment process in a nutshell and it takes up to 5 seconds on average.

Now that you know how much happens when you perform that simple swipe, it’s time to remember to pay your bills on time!

 

Toucan Weekly Round Up – 27 March 2017

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Fintech, Mobile Wallet and Bitcoin Focused Articles

Ethereum: The not-Bitcoin cryptocurrency that could help replace Uber

http://mashable.com/2017/03/24/ethereum-bitcoin-explainer/#6qzp4U_ANaqQ

Ethereum is a decentralized application that supports a cryptocurrency just like Bitcoin. You can pay for things online, trade money, and buy and sell anywhere that accepts it. The difference is that Ethereum’s cryptocurrency, known as Ether, runs on a “smart contract” blockchain technology and “if:then” system that allows Ethereum to only be traded if a certain condition is met. This new payment method that incorporates smart contract technology could one day replace lawyers, companies, and even Uber.

 

Southeast Asia’s Fintech Pivot

https://www.techinasia.com/southeast-asia-fintech-pivot

Grab is raising a fresh US$1.5 billion in capital to bolster its own payment platform while Go-Jek’s mobile wallet Go-Pay has become the fourth most widely-used e-wallet in less than a year of existence. These moves by two of Southeast Asia’s fastest-rising tech firms are part of a larger trend, a regional pivot towards Fintech. This pivot is significant as payments is the last frontier of e-commerce in Southeast Asia and cracking payments could help make Southeast Asia’s online marketplaces financially sustainable.

 

Singapore Fintech Startup OOjiBO raises US$3.6M to serve the unbanked

https://e27.co/singapore-fintech-startup-oojibo-raises-us3-6m-serve-unbanked-20170327/

OOJiBO provides a full stack retail banking system on a mobile phone and offers a full suite of services from p2p transfers, retail payments, interest bearing accounts, e-commerce payments, cross-border remittance, cash services, debit/credit card virtualisation and utilities payment. It can be used on both smartphones and feature phones. In areas where data connections are poor or non-existent, the OOjiBO system will automatically switch to an STK (SMS) format, allowing it to deliver financial inclusion to people living in rural areas or places with frequent electricity outages.

 

Unionbank launches the New Eon with Daon’s Biometrics-based strong authentication

https://www.daon.com/newsroom/press-releases/464-unionbank-launches-the-new-eon-with-daon-s-biometrics-based-strong-authentication

Union Bank has launched the New EON, a digital banking platform, that uses Daon’s IdentityX Platform and its capabilities in mobile biometric authentication to improve security and customer experience. Working with Daon, EON has employed a layered approach to security, including device cryptography and biometric verification to lock down their mobile channel and secure high risk transactions. EON has initially deployed fingerprint and face authentication with subsequent plans to enable additional biometrics like voice recognition.

 

MENA Fintech Startup Now Money wants to help everyone get access to banking

https://www.entrepreneur.com/article/291944

Now Money was launched by its founders to provide expat workers who don’t have access to banking and remittance services with direct access to a current account, debit card and remittance from their proprietary app and service center. Customers can monitor their transactions, remit money and pay utility bills conveniently from the app. Users can also access multiple online exchange houses and select one based on the rate and services offered.

Toucan Weekly Round Up – 13 March 2017

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Fintech and Startup Focused Articles

This fintech startup is disrupting Korea’s banking sector, rewriting regulation

https://e27.co/fintech-startup-disrupting-koreas-banking-sector-rewriting-regulation-20170315/

Toss is a simple and sleek money transfer app that is Korea’s answer to Paypal’s Venmo. The app reduces the mobile banking process to three steps: type in the recipient’s bank account or phone number, set the amount, then input your password or scan your fingerprint on your phone. Toss has also steered beyond transfers, adding microloans, credit score management, and a handy personal finance dashboard. Next up on the agenda is adding overseas transfers, loan brokerage, and insurance.

 

Ex-Credit Suisse Trader Sees Two-Year Card Startup Making Profit

https://www.bloomberg.com/news/articles/2017-03-14/ex-credit-suisse-trader-sees-two-year-card-startup-making-profit

Revolut is a startup that sells prepaid travel cards that can be loaded with different currencies. Revolut makes money by charging fees on ATM withdrawals and taking a cut from merchant charges on payments in shops. Since it began in July 2015, the company has processed more than $2 billion in foreign-exchange transactions. The company plans to expand into insurance at the end of March and wealth management from April or May this year through partnerships with third-party companies.

 

5 reasons why paperless finance is the way to go

https://www.techinasia.com/talk/5-reasons-paperless-finance

The prospect of paperless finance will make long waiting lines, inefficient procedures, tedious paperwork, and other hassles associated with slow banking services a thing of the past. Loan processing could also be made much easier, setting up accounts online could become much more convenient than going to a bank.

 

New Framework to help set up fintech firms in S’pore and Japan

http://www.straitstimes.com/business/banking/new-framework-to-help-set-up-fintech-firms-in-spore-and-japan

Fintech firms in Singapore and Japan can look forward to an easier set-up process in either country, thanks to a new framework. Monetary Authority of Singapore (MAS) and the Financial Services Agency of Japan have set up a cooperation framework to boost fintech links between the two nations. This effort will help reduce regulatory uncertainty and barriers to market and firms can also initiate discussions with the regulatory bodies, and get advice on regulatory matters such as required licenses.

 

Singaporean startup raises $2.4m to bring its AI-powered digital marketing tools to mobile.

https://www.techinasia.com/ematic-pre-series-a-for-real-funding

Singapore-based startup Ematic integrates into a business’ email service and produces insights to help target its communications better. A suite of tools helps it analyze data and design more effective marketing campaigns. This helps businesses navigate through a fine line between successfully engaging your customers and spamming the daylights out of them, staying on the good side of the line. App operators will then be able to feed their users’ behavioral data into their email marketing system and benefit from Ematic’s analysis and automation.