Get to know the key players in the e-card payments industry

The electronic card payment industry is an intricate network of interconnected players, each playing crucial roles in ensuring secure and smooth transactions. While the process may seem simple from a consumer perspective, multiple entities that work together participate in the backend. In this article, we will analyze the different players in the industry, focusing especially on the acquiring processor and its distinction from the acquirer, and why a solid acquiring processor is essential for modern payment systems.

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What is an acquiring processor and how is it different from an acquirer?

With the convenience of modern payment methods, such as contactless cards and one-click online payments, it's easy to overlook the complex mechanisms that operate behind the scenes. Money seems to be transferred almost magically from one bank to another. However, the reality involves a sophisticated network of entities that ensure that every transaction is processed smoothly and securely.

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The purchaser: definition and function

An acquirer, also known as an acquiring bank, is responsible for providing merchants with accounts where customer payments are deposited. All merchants, whether they operate online, in physical stores, or both, need an acquirer who accepts payments. Traditionally, banks have fulfilled this function, but with the advent of electronic money licenses, many non-banking entities also act as purchasers. The acquiring bank charges the merchant a fee, called the merchant discount rate (MDR), which ranges from 1% to 4%, depending on the merchant's country and industry. The MDR is deducted from the amount that must be paid to merchants as a result of their sales.

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The acquiring processor: definition and function

An acquiring processor acts as a technical intermediary between the merchant, the card network and the acquirer. It is responsible for the processing of payments from the merchant, through the acquirer, to the card network or alternative payment methods (APM), and ensures that the transaction is authorized and settled by the card issuer. In the traditional four-part model of card transactions, the acquiring processor manages the merchant and the acquirer's part of the transaction, as opposed to the issuing processor, which manages the customer's and the issuing bank's part.

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The distinction between the acquirer and the acquiring processor

Although the acquirer and the processor may be the same entity, they often operate separately. This division has become more common due to the changing nature of payments. From point-of-sale (POS) devices to online payment gateways and mobile POS (mPOS), acquisition complexity has increased significantly. Providers capable of offering acquirer processing in a fragmented payment ecosystem, especially those without restrictions from legacy systems, are thriving.

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The main difference lies in their responsibilities:

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The acquirer interacts directly with the merchant, assuming financial responsibility, establishing fee structures and essentially acting as the face of the transaction.

The acquiring processor is the technical backbone that authorizes transactions, links the merchant, the card system or APM and the acquirer, evaluates the validity of the transaction, minimizes fraud and chargebacks, and maintains the payment record system.

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The importance of a solid acquisition processor

In a rapidly changing and expanding payments landscape, purchasers with outdated technology will struggle to keep up with new demands. As the ecosystem becomes more fragmented and complex, acquirer processors that can efficiently handle cross-border transactions in real time will win out. The ability to process multiple payment types and currencies, provide real-time data and analysis, and provide modular and compatible solutions is crucial.

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The payment ecosystem: key players

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To fully understand the payments industry, it's essential to recognize the roles of different entities:

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Merchant

Merchants sell goods or services, either physically or online. They are the starting point of the transaction process, accepting payments from customers for the products or services provided.

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mPOS and POS providers

Point of sale (POS) and mobile point of sale (mPOS) providers offer hardware and software solutions for merchants to accept card payments in physical stores. These systems can include traditional card readers, mobile card readers, and integrated software for inventory and sales management. Examples include Square, Clover, and Verifone.

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Payment gateway

A payment gateway is a software or API that accepts credit card transaction information from the card reader (either a POS terminal or an online payment page) and securely communicates this data to the acquiring processor. Some examples include companies like Stripe, PayPal, Adyen, and Braintree.

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Orchestrators

Orchestrators manage the flow of transactions between different payment methods and providers, ensuring seamless integration and optimal routing for each payment. They allow merchants to offer multiple payment options and optimize transaction costs and authorization rates. Some examples are Spreedly and Yuno.

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Payment Facilitators (PayFacs)

Payment facilitators simplify the process for sub-merchants to accept card payments without the need for individual business accounts. They bring together several sub-merchants into a single main business account, streamlining the onboarding process and compliance requirements. Some examples are Dlocal, Ebanx, Square, PayU and PayPal.

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Acquiring processor

An acquiring processor performs a technical function: it transmits data from the gateway to the card networks (and vice versa) and guarantees the authorization and settlement of the transaction. Examples of acquiring processors include First Data, Worldpay, Credibanco, Redeban, Prisma, Global Processing, Transbank, Totalnet, Fiserv and ACI Tech, among others.

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Acquiring bank

An acquiring bank, often called a “commercial acquirer”, registers and onboards merchants, providing them with trading accounts to receive settlement funds. Without a business account, merchants can't accept credit card payments. Some examples are Chase Paymentech, Bank of America Merchant Services, First Data, Worldpay, Global Payments and Bancolombia, among others.

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Card networks

Card networks provide the electronic infrastructure that allows processors and banks to communicate and process transactions in real time. They also set the rules and standards for network participants. Examples include Visa, Mastercard, AmEx, and Discover.

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Issuing bank

The issuing bank is the entity that issues credit cards to consumers, guaranteeing their credit accounts. Examples include Chase, Citi, Capital One, Bank of America and AmEx, Itau Unibanco, Banco do Brasil, Banorte, Santander, and others.

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Emitter processor

An issuer processor provides several services to issuing banks, including card approval authorizations and fund settlement. Some examples are TSYS, Fiserv, StarkinFra, Paymentology, Pomelo, Galileo, Dock, Global Processing, Celcoin, ACI tech, and others.

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Are purchaser processors the same as clearing houses? Or do clearing houses also act as purchaser processors?

Clearing houses play a role independent of that of the acquiring processor. However, in the case of Mexico, Colombia and Chile, incumbent networks play both roles. Each of them is explained below, considering Mastercard and Visa as clearing houses, but taking into account that PROSA/e-Global are also low-value payment systems.

Interrelation between Mastercard and Visa clearing houses in Mexico and an acquiring processor

Mastercard and Visa clearing houses:

• Facilitate the clearing and settlement of payments between issuing and acquiring banks.
• Ensure secure and efficient fund transfers.

Acquiring processor:

• It works to acquire banks and process commercial transactions.
• It handles authorization, fraud detection, routing and communication with card networks such as Mastercard or Visa.

Payment Process with Clearing Houses:

Authorization:

• The customer makes a purchase with a Mastercard or Visa card.
• The payment request goes from the merchant's terminal to the acquiring processor and then to the Mastercard or Visa network.
• Mastercard and Visa obtain authorization from the issuing bank and return the response to the issuing processor and the merchant.

Compensation and Settlement:

• Authorized transactions are sent to Mastercard and Visa clearing houses.
• Mastercard and Visa clear and settle transactions between issuing and acquiring banks.

Business Credit:

• The acquirer's processor provides the technology for the acquirer to credit funds to the merchant's account, completing the transaction.

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Navigating complexity

Understanding the payment processing ecosystem can be challenging, especially since many companies play multiple roles and partner with others. It is important to note that the real purchaser processors in the U.S. They only include First Data, Worldpay, Global Payments, Elavon and Chase Paymentech. This concentrated situation is replicated in Latin America. Acquiring processors in Colombia include players such as Redeban and Credibanco. Eglobal and Prosa exist in Mexico, and Prisma, Fiserv and Global Processing in Argentina. Brazil is the exception, where the government and major networks (VISA and Mastercard) helped to unlock the number of acquiring processors, which grew from 2 to 25 between 2004 and 2021.

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For example, PayPal, Stripe and Square partner with major acquiring processors for transaction processing. While merchants may consider these companies as their processors, they simply provide the connection to real processors such as First Data or Chase Paymentech.

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The Future of Acquirers and Acquirer Processors

Looking to the future, the lines between technology and fintech companies will continue to interconnect. As more businesses, particularly small and specialized companies, require acquisition services, the demand for real-time data, plug-and-play modules and simplified regulatory compliance will increase. Acquirers and processors that can adapt to this evolving landscape will be better positioned to succeed.

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The electronic card payment industry is a complex but essential system that facilitates secure and efficient transactions. As technology continues to evolve, the need for advanced and adaptable acquisition processors becomes increasingly important, ensuring that companies can meet the demands of modern consumers and navigate the complexities of the payments landscape effectively.

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The relevance of building a new acquirer processor in LATAM: a cloud-native approach

The payments landscape in Latin America is rapidly evolving, driven by growing digital adoption, regulatory changes, and the need for more inclusive financial services. In this context, developing a new acquirer processor that is native to the cloud, equipped with cutting-edge features, and interacts efficiently with all key players in the electronic card payments industry presents a significant opportunity. The following explains why this effort is relevant and potentially transformative for the region.

Key Factors for the Development of a Cloud-Native Acquiring Processor in LATAM

1. Growing digital economy :
2. The digital economy is expanding and more and more consumers and businesses are adopting online transactions.
3. The growth of e-commerce is driving the need for reliable and efficient payment processing solutions that can handle large volumes of transactions without problems.
4. Regulatory changes :
5. Many countries are modernizing their financial regulations to promote competition and innovation in the payments sector.
6. These changes allow new players to enter the market and offer advanced services, challenging traditional banks and processors.
7. Greater financial inclusion :
8. A significant part of the Latin American population still has no access to banking services or has limited access to them.
9. Innovative payment solutions can bridge this gap, providing more people with access to financial services through digital media.
10. Fragmented payment ecosystem :
11. The payment ecosystem in the region is diverse, with multiple local and international actors.
12. A cloud-native acquiring processor can integrate multiple payment methods and systems, providing a unified solution for merchants and consumers.

Benefits of a Cloud-Native Acquiring Processor

1. Scalability :
2. Cloud-native solutions can scale effortlessly to manage fluctuating transaction volumes.
3. This scalability is crucial to adapt to peak periods, such as Black Friday or seasonal sales.
4. Agility and flexibility :
5. Cloud-native architectures support the rapid deployment and iteration of new features and services.
6. This agility allows the processor to quickly adapt to changing market demands and regulatory requirements.
7. Profitability :
8. Cloud infrastructure reduces the need for significant initial investments in physical hardware.
9. It allows a pay-per-use model, optimizing operating costs based on actual use.
10. Improved security :
11. Cloud providers invest heavily in security measures, ensuring data protection and compliance with international standards.
12. This security is critical to maintaining the trust of merchants and consumers.
13. Cross-border capabilities :
14. A cloud-native processor can easily expand its services to different LATAM countries.
15. This capability supports traders looking to operate in multiple markets, improving regional trade and economic integration.

Strategic Features for a Cloud-Native Acquiring Processor

1. Real-time data and analysis :
2. Provide merchants with real-time information about their transactions, helping them to make informed trading decisions.
3. Advanced analytics also help detect and prevent fraud.
4. Omnichannel support :
5. To ensure seamless integration of in-store, online and mobile payments.
6. This omnichannel approach improves the customer experience and increases merchant sales.
7. API-first approach :
8. By developing robust APIs, it will allow easy integration with several payment gateways, e-commerce platforms, and fintech solutions.
9. This approach facilitates innovation and partnerships within the payments ecosystem.
10. Regulatory Compliance :
11. To ensure that the processor complies with local and international regulatory standards.
12. Compliance with PCI DSS, GDPR and local data protection laws is crucial for operating in multiple jurisdictions.
13. Fraud Prevention and Risk Management :
14. Implement advanced fraud detection algorithms and machine learning models to minimize fraudulent transactions.
15. Provide traders with tools to effectively manage and mitigate risks.

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The creation of a new cloud-native acquirer processor in Latin America is not only relevant, but also essential to address the region's unique challenges and opportunities. By taking advantage of the scalability, agility and security of cloud technology, this processor can deliver superior services that meet the changing needs of merchants and consumers. In addition, the strategic integration of real-time analytics, omnichannel support, robust APIs, regulatory compliance and advanced fraud prevention will position the processor as a key player in the regional payments ecosystem. This initiative can boost financial inclusion, stimulate economic growth and foster innovation in one of the world's most dynamic regions.

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