ISO 8583 for Software Engineers - Introduction

Summary

In this video, the speaker introduces viewers to the intricacies of ISO 8583, a messaging protocol used for card-related financial transactions. They walk through how card transactions work, detailing the roles of three key institutions: the issuer bank, the acquirer bank, and the credit card network. The video covers how these institutions communicate using ISO 8583 to ensure the success or failure of transactions. The speaker emphasizes the importance of understanding this protocol for backend engineers working in financial tech, providing insights into authorization, authentication, and the essential components of ISO 8583 messages.

Takeaways

• 😀 ISO 8583 is a messaging protocol used for card-related financial transactions, enabling communication between banks and credit card networks.
• 😀 The main institutions involved in card transactions are the Issuer Bank, Acquirer Bank, and Credit Card Networks, each playing a crucial role in the success or failure of the transaction.
• 😀 The Issuer Bank is responsible for issuing cards to customers and ensuring authentication, authorization, and sufficient funds for a transaction.
• 😀 The Issuer Bank also handles customer service tasks such as dispute resolution and chargebacks.
• 😀 The Acquirer Bank, also known as the Merchant's Bank, acts as an intermediary between merchants and the credit card networks, facilitating payments.
• 😀 Merchants rely on the Acquirer Bank to handle the communication with credit card networks, so they don’t need to manage multiple card schemes directly.
• 😀 Credit Card Networks (or card schemes) sit between the Issuer Bank and Acquirer Bank, managing the communication for transaction processing.
• 😀 Credit Card Networks are divided into open networks (e.g., Visa, Mastercard) and closed networks (e.g., American Express, Discover).
• 😀 Open networks allow third-party banks to issue cards and are only responsible for transaction routing, while closed networks issue cards and manage transactions themselves.
• 😀 ISO 8583 facilitates the quick and secure exchange of transaction data, including the card’s primary account number (PAN) and transaction amount, between all parties.
• 😀 The video provides a foundation for understanding ISO 8583, with future lessons planned to dive into its message components like message type, bitmaps, and data elements.

Q & A

What is ISO 8583?

ISO 8583 is a messaging protocol used for card-related financial transactions, enabling communication between various institutions involved in processing such transactions. It is a standard that defines how card transaction data is exchanged.

What are the three major institutions involved in card transactions?

The three major institutions involved in card transactions are the Issuer Bank, the Acquirer Bank, and the Credit Card Network (also known as Card Schemes).

What role does the Issuer Bank play in a card transaction?

The Issuer Bank is the bank that issues the card to the consumer. It is responsible for verifying that the consumer has sufficient funds, authenticating the card's ownership, and handling customer service issues such as dispute resolution and chargebacks.

What is the function of the Acquirer Bank in a card transaction?

The Acquirer Bank, also known as the Merchant's Bank, holds the merchant's account and acts as an intermediary between the merchant and the Credit Card Network. It ensures that the merchant can accept payments from various card networks without worrying about the underlying technical details.

What is the role of the Credit Card Network in the transaction process?

The Credit Card Network, or Card Scheme, acts as the intermediary between the Acquirer Bank and the Issuer Bank. It ensures that the transaction data flows smoothly between the two banks and is used to verify the transaction's legitimacy.

How does ISO 8583 help in communication between these institutions?

ISO 8583 standardizes the message format used by all three institutions (Issuer Bank, Acquirer Bank, and Credit Card Network) to communicate transaction data. It allows them to exchange information such as card details, transaction amounts, and authorization results in a common language.

What are the key responsibilities of the Issuer Bank during a card transaction?

The Issuer Bank is responsible for ensuring that the cardholder has sufficient funds, authenticating the cardholder through methods like PIN verification, and handling customer service issues such as chargebacks and disputes.

What is the difference between Open Network and Closed Network card schemes?

An Open Network card scheme, like Visa or Mastercard, acts solely as a Credit Card Network and allows other banks to serve as the Issuer Banks. A Closed Network card scheme, like American Express or Discover, acts both as the Credit Card Network and the Issuer Bank.

What happens when a customer makes a transaction at a supermarket using their card?

When a customer makes a transaction, the Acquirer Bank processes the payment and communicates with the Credit Card Network, which then communicates with the Issuer Bank to verify the transaction. The Issuer Bank checks the funds, authenticates the card, and either approves or declines the transaction, with the result passed back through the network to the Acquirer Bank.

How does the communication between the Acquirer Bank and the Credit Card Network work?

The Acquirer Bank sends transaction details to the Credit Card Network, which then forwards the request to the Issuer Bank. Once the Issuer Bank verifies the transaction, it sends an authorization back through the Credit Card Network to the Acquirer Bank, completing the transaction.