Payments Transactions Explained
Summary
TLDRThis presentation outlines the payment process, detailing the roles of the customer, merchant, acquirer bank, card network, and issuing bank. It explains the steps from a purchase to transaction authorization and settlement, emphasizing the importance of the interchange fee, processing fee, and acquirer fee. The Merchant Discount Rate (MDR), which sums these fees, is highlighted, with a focus on efforts to reduce MDR in growing markets like India to encourage digital payments.
Takeaways
- 🛒 The customer initiates the payment process by making a purchase at a shop.
- 🏪 The shop uses a point of sale (POS) device provided by an acquirer bank to process payments.
- 🏦 The acquirer bank is responsible for the POS terminal and assists in streamlining payment challenges.
- 🔄 The card network, such as Visa or Mastercard, acts as the payment processors and the integration backbone between banks.
- 💳 The issuing bank is the one that issues the card used by the customer for the transaction.
- 🔐 The authorization process involves the POS device sending transaction data to the acquiring bank for validation.
- 📊 The acquiring bank checks the validity of the card and the customer's available funds or credit limit before proceeding.
- ✅ Upon successful authentication, the issuing bank approves the transaction, which is then communicated back to the merchant.
- 📑 The merchant receives a printout indicating the success or failure of the transaction from the acquiring bank.
- 💵 The final step in the payment process is the settlement, where the acquiring bank transfers the funds to the merchant.
- 💲 Various fees are involved in the transaction, including interchange fees, processing fees, and acquirer fees, which make up the Merchant Discount Rate (MDR).
Q & A
What is the role of the customer in the payment flow?
-The customer initiates the payment process by making a purchase and using a debit or credit card at the point of sale device.
What is a point of sale (POS) device and who provides it?
-A point of sale device is the terminal used to process card payments at a merchant's location. It is provided by an acquirer bank, which is responsible for its installation and maintenance.
What is the function of an acquirer bank in the payment process?
-The acquirer bank is responsible for placing the POS terminal at the merchant's location and facilitating the transaction by sending the transaction data to the customer's issuing bank for authorization.
What is the role of a card network in the payment transaction?
-A card network, such as Visa or Mastercard, acts as the backbone for the integration between the acquiring bank and the issuing bank, ensuring the transaction data is transmitted securely.
What is an issuing bank and how does it relate to the customer?
-The issuing bank is the financial institution that has issued the card to the customer. It authenticates the transaction, checks the validity of the card, and verifies that the customer has sufficient funds or credit limit for the transaction.
What happens when a customer swipes their card at the POS terminal?
-When a customer swipes their card, the POS terminal sends the transaction data to the acquiring bank, which then forwards it to the issuing bank for authorization.
What is the purpose of the authorization step in the payment process?
-The authorization step ensures that the card being used is valid, not hot-listed, and that the customer has the necessary funds or credit limit to complete the transaction.
What is the difference between a debit card and a credit card in terms of transaction validation?
-For a debit card, the issuing bank checks if there are sufficient funds in the account, while for a credit card, it verifies that the transaction is within the customer's credit limit.
What is the final step in the payment process after the transaction is authorized?
-The final step is the settlement, where the acquiring bank completes the financial transaction by transferring the funds to the merchant.
What is an interchange fee and who charges it?
-An interchange fee is a premium fee charged by the issuing bank for maintaining the card, authorizing transactions, and managing the customer's account. It is typically the highest fee in the payment process.
What is the Merchant Discount Rate (MDR) and how is it determined?
-The Merchant Discount Rate (MDR) is the sum of all fees charged in a payment transaction, including interchange fee, processing fee, and acquirer fee. It typically ranges from one to three percent of the transaction amount.
Outlines
💳 Understanding the Payment Flow Process
The first paragraph introduces the topic of payment flow, explaining the roles of various parties involved in a successful transaction. The customer initiates the process by making a purchase with a card at a point of sale (POS) device provided by an acquirer bank. This bank is responsible for the installation and management of the POS terminal. The card network, such as Visa or Mastercard, acts as the integration backbone between different banks. The issuing bank, which issued the customer's card, authenticates the transaction based on the card's validity and available funds or credit limit. The process involves authorization, validation, and settlement steps, with the acquirer bank notifying the merchant of the transaction's outcome and completing the settlement.
💰 Fees Associated with Payment Transactions
The second paragraph delves into the fees involved in payment transactions. It highlights the interchange fee, which is the most significant fee charged by the issuing bank for maintaining the customer's account and authorizing transactions. The interchange fee is approximately 1.81% for credit cards and 0.3% for debit cards. Additionally, payment processors like Visa and Mastercard charge a processing or switching fee, which ranges from 0.15% to 1%. The Indian government is working to reduce or eliminate this fee for domestic RuPay cards to promote their use. Acquirer banks also charge a fee for their services, which can be between 0.5% to 1%. The merchant discount rate (MDR) is the cumulative sum of all these fees, typically ranging from 1% to 3%. The paragraph concludes by discussing the impact of MDR on merchants and the preference for cash or alternative payment methods like UPI in markets with high MDRs.
Mindmap
Keywords
💡Payment Flow
💡Point of Sale (POS)
💡Acquirer Bank
💡Card Network
💡Issuing Bank
💡Authorization
💡Settlement
💡Interchange Fee
💡Merchant Discount Rate (MDR)
💡UPI
💡Switching Fee
Highlights
The presentation describes the payment flow and the collaboration between different parties involved in a successful payment.
The customer is the first party in the payment process, making a purchase using a debit or credit card.
The shop, equipped with a point of sale device provided by an acquirer bank, is the second party in the transaction.
The acquirer bank is responsible for installing the point of sale terminal and streamlining payment challenges.
Card networks, such as Visa and Mastercard, act as payment processors and integrate between different banks.
The issuing bank, which issued the customer's card, validates the transaction based on the cardholder's account status.
The authorization process involves the point of sale device sending transaction data to the acquiring bank.
The acquiring bank checks the validity of the card and the available funds or credit limit before authorizing the transaction.
The issuing bank authenticates the transaction and communicates the result back to the acquiring bank.
The acquiring bank notifies the merchant of the transaction's authorization or decline.
The merchant receives a printout indicating the success or failure of the transaction.
Settlement is the final step where the acquiring bank processes the payment to the merchant.
Interchange fees are the highest fees charged by the issuing bank for maintaining the card and authorizing transactions.
Payment processors charge a processing or switching fee, which can vary between 0.15% to 1%.
The Indian government is working to reduce or eliminate the processing fee for domestic card transactions.
Acquirer banks also charge a fee for their services, which can range from 0.5% to 1%.
Merchant Discount Rate (MDR) is the sum of all fees charged in a transaction, typically between 1% to 3%.
In growing markets like India, merchants may prefer cash or UPI payments due to lower MDR.
Transcripts
in in the current presentation
uh today's presentation let's quickly go
through how the payment flow works
what are the various parties which are
involved how they collaborate
uh and leverage each other to make a
successful payment
so let's go straight to the topic
describing the flows let's quickly go
through the main parties which are
involved
so the first party here is the customer
who is making a purchase
so the customer who is making a purchase
is the first party
we have the shop the shop is
the one where he is purchasing the stuff
and
where he has to make the payment and the
shop is the one
which has which is using a point of sale
device for making the payments
so this point of sale device is
basically
given by somebody which is known as a
acquirer bank
or acquiring bank so the bank
which has installed the point of sale
terminal at the merchant location
so this acquirer is the bank which has
basically placed this uh
this device and which is which is
helping you
uh iron out different challenges which
are there in payment in a very stream
streamlined and uh abstracted way and
then we have another party which is the
card network
payment pros also called as the payment
processors these are rupe
visa cards mastercards different cards
which are there
and these are basically the backbone of
having the integration between bank a
and bank b
and then the final thing is the issuing
bank so this issuing bank is the bank
who has
issued the card which the customer is
going to use so that's why it is also
called as a issuing card because it is
the one which has issued the card
so let's see the number one the first
step is here
here what is happening is the customer
has purchased some goods
and he or she is using a debit card or a
credit card to make the payments
so he purchases he chooses groceries he
swipes his card here swipes tabs
rf rfid nfc base
contactless card anything he does he
does it on the point of sale device
from there what is happening is that the
this terminal is going to send the
transaction data to the acquiring bank
so this is basically the authorization
part where this
message is being sent here
so the acquiring bank is going to
receive this message
and it is going to send it so it has to
because
it has to say see that whether this
issuers card is valid it has the valid
amount i mean
i it is valid for transactions it is not
hot listed at all
so for all those things it has to send
the data here so it is
sending that data here so basically this
transaction three
three and it happens on the backbone of
the payment processor it is basically
the same transaction which is going here
not two transactions on the backbone of
this it is going
so the acquiring bank is sending the
transaction data to the customers
the consumers issuing bank and it is
leveraging this card network
so it is sent it there and this
issuing bank once it receives this data
it is going to authenticate
so this issuing bank is going to
authenticate the data that whatever it
has received is correct or not
validate valid wallet card holder
based on the successful authentication
and also based on
the limit so for example if it's a debit
card whether the money is there in the
account or it is a credit card then the
credit limit is valid
so those checks it will make and based
on those checks it will
it will either validate the transaction
or it is going to decline the
transaction
and that result is going to come to the
acquiring bank
acquiring bank and the acquiring bank
notifies
the merchant which is the step number
five
so in the step number five we are saying
that the acquiring bank has notified the
merchant that the transaction has
been authorized or declined okay and
then uh
based on whatever is the status you get
a print out here
so this printout is coming based on uh
the step number five so based on the
output of step five you get a print out
here
indicating success or failure of the
transaction
and the last step which is indicated
here is the number six
is basically the settlement so from uh
from the acquiring bank
the settlement should be done to the
merchant so that settlement is the
last step here so this is
on a very high level how uh the
what are the different parties involved
and how these financial
payment transactions work when you when
you swipe your card
on a point of sale device in a grocery
shop or anywhere else
now let's see uh uh now now see
we are leveraging all these parties so
they must be
charging some fee so that fee
is right
so what we see here is the different
kind of fees which are
levied so this is the most important fee
and
mostly this is the highest fee which is
there this is called the interchange fee
so this issuing bank is issuing the card
it is maintaining the card it is
basically holding the account of this
customer and whatever data comes this
issuing bank is responsible for
authorizing denying
maintaining the balance all those things
so for this
reason issuing bank charges are
a premium and that is basically a fee
and it is called an interchange fee
and we are seeing these numbers here
they may be
here there but roughly they may be they
may be correct and accurate so one point
eight one percent
uh credit card and point three percent
for debit cards
then these processors so for example
this visa
mastercard these these are going to
charge you
uh the the processing fee
also called as widely called as
switching fee
and this switching fee is basically from
point one five percent to one percent
and indian government is working towards
making for rupe
this processing fee to be zero
and that's why indian government is
trying to push this rupe rupe is a
basically domestic card from india
and it is now they are trying to extend
it to international also
international level also and there the
switching fee
is planned to be zero but most of these
processors are basically
some organizations profit making
organization so you will see the
switching fee between point one five
percent to one percent
and then there is a fee which this bank
also because this is also helping this
is also party in this transaction
so it also charges some fee point five
percent to one percent fee uh
so so like i said interchange fee is the
highest
and then this could be the second and
this is the acquirer fee is
generally it is the minimum because they
charge some other fees also from the
merchant like
the yearly maintenance of the point of
sale or some other fees
so now we we have one very important
term called merchant discount rate
so all these fees which is being charged
uh
is is basically called the mdr and it is
the sum of all the fees which is getting
charged
uh and it is around one to three percent
so so that's uh that's the
mdr and uh so so so that's why you may
have
noticed especially in growing markets
like india that the
merchant asks you uh to probably pay in
cash
uh or pay by upi upi is again
a payment methodology in india unified
payment
so uh so so wherein this mdr
is very less or government is trying to
make it
zero uh so that's about
the payment i hope this is little clear
to you now
thanks for watching thank you
Ver Más Videos Relacionados
How UPI's Bold Business STRATEGY will KILL VISA and MASTERCARD? : UPI CREDIT LINKING EXPLAINED
Hybrid Program LFG Training
Bitcoin Fees and Unconfirmed Transactions - Complete Beginner's Guide
Ethereum Gas Fee Upgrade SHOCKING RESULTS!📉 Coinbase Fees Go to Zero🔥
Flipkart Axis Bank Credit Card
Payment Gateway, Payment Processor and Payment Security Explained
5.0 / 5 (0 votes)