Bre-B

NOTES

Authorization does not move money. Visa does not move money.
EMV chip generates a unique, one-time-use cryptographic code to ensure the transaction is secure and cannot be cloned.
UBIQUITY
acquirer sends req to card scheme
Scheme forwards request packet to correct Issuing Bank given BIN Range
JPM RUNS FRAUD CHECK
JPM DEBITS ACC
JPM SENDS APPROVAL/DECLINE RESPONSE BACK TO ISSUER
MERCHANT DELIVERS COFFEE
JPM SENDS $$ LATER
EOD FLOW: JPM -> VISA -> ACQUIRER -> MERCHANT
ACQUIRING = ACCEPTING CARDS
INTERNET ACQUIRING
MOBILE ACQUIRING
ATM ACQUIRING
QR ACQUIRING
BLOCKCHAIN VALUE PROP = STP VIA RTGS

FLOW

buyer presents a bank card for payment at a POS terminal:

The bank card details are transmitted to the acquiring bank.
The acquiring bank sends a query to the payment system (e.g., Visa, Mastercard). 4.
The payment system sends the query to the issuing bank that issued the card.
The issuing bank checks whether there are enough funds on the card to make the payment. In case of a positive result, the payment is authorized.
The authorization goes through confirmation, returning through the chain discussed above to the acquiring bank and the merchant.
Funds are debited from the buyer's card and credited to the seller's current account - this is how acquiring works.

Step 5. Moving the money: After approval, the acquiring bank shifts the money from the customer's bank to the merchant's account – this usually takes a couple of days.

why stablecoins?

post auth, instead of just sending auth response data:

Issuer → Scheme → Acquirer → Processor → POS Terminal

send $$ too

Issuer → Blockchain → POS Terminal

ACQUIRING = ACCEPTING CARDS

Acquirer Processing

Transaction Initiation
Authorisation Request
Fund Verification
Transaction Approval
Settlement

Acquirer Processing

Transaction Initiation
Authorisation Request
Fund Verification
Transaction Approval
Settlement

rtgs acq

https://acquired.com/everything-you-need-to-know-about-card-acquiring/

If there is a transaction reversal, a return, or a chargeback for whatever reason, the acquirer is the one who has to transfer that money back to the customer

ACQUIRER ROLES

Provision of a POS terminal/integration with an online platform for accepting payments.
Processing of the buyer's card data.
Payment authorization - to put it simply, the system should make sure that there is enough money on the card.
Transfer of funds from the buyer's card to the seller's current account.
Technical support + equipment service.

Buy now pay later (BNPL)

With the multiple BNPL models supported, you can enable your merchants to expand their payment acceptance portfolio and increase their customer conversion rate. The most popular way to offer BNPL in the acquiring space is the at purchase off-card model, usually supplied direct-to-consumer. With this service, the advanced configuration options allow you to design instalment plans suitable to both your audiences – merchants and consumers. These plans can be tailored to offer different repayment breakdowns, including a percentage paid upfront, as well as various terms, credit limits, interest rates, fees, charges. We can also work with you to further customise your BNPL offering by assigning user-defined logic to your program. Alongside this, the service offers comprehensive merchant management and billing functions.

For more information, please see The ultimate guide to BNPL.

Merchant Accounts

Merchant accounts are central to traditional payment processing. They control how money from a card transaction moves from point A to point B.

POS Terminal → Processor → Acquirer → Scheme → Issuer

Step 1: The Request Starts at the POS Terminal

Step 2: POS → Acquirer (The First Leg)

Step 3: Acquirer → Card Scheme (Routing the Message)

Step 4: Card Scheme → Issuer (The Decision Point)

Step 5: The Response Returns to the POS

When acquiring banks are involved in processing transactions on merchants’ websites, they are exposed to certain risks. If there is a transaction reversal, a return, or a chargeback for whatever reason, the acquirer is the one who has to transfer that money back to the customer, reversing the regular process. However, acquirers then have to wait until the merchant returns funds to them, meaning they are the party that is out of pocket!

Step 1: Payment Initiation

Step 2: Transaction Submission

Step 3: Authorization Request

Step 4: Approval or Decline

Step 5: Funds Transfer

If the transaction is approved, the issuer transfers the funds from the customer’s account to the acquirer. The acquirer then deposits the funds into the business’s merchant account, completing the transaction.

CARD SCHEME ROLES

Validity Check: Is the card active, not expired, and not flagged as stolen? Balance Check: Are there sufficient funds or credit available? Security Check: Is the PIN/CVV correct? Does the unique EMV cryptogram validate? Fraud Check: Does the transaction location, amount, or merchant type match the cardholder’s spending habits? Is the merchant category allowed? Is the user within their daily limits?

INTERNET ACQUIRING

the buyer selects a product;
adds it to the shopping cart;
proceeds to payment;
enters the card details, confirming the payment.

The acquirer is responsible for:

Receiving payment requests from payment gateways
Contacting card schemes (such as Visa or Mastercard) to request payment authorization
Passing the payment success or decline message back to the merchant
Settling funds – minus fees – into the merchant’s account

The issuer is responsible for:

Issuing cards (such as credit or debit cards) to customers
Authenticating cardholder details during transactions
Checking whether the account holds sufficient funds or credit to complete the payment
Releasing funds to the acquirer upon successful authorization

Initiating: receiving the transaction data from the payment gateway and sending it to the merchant acquirer
Pre-authorization: ringfencing the requested payment amount
Authorization: requesting confirmation that the card exists, that the cardholder has sufficient funds, and that the account is not blocked or under investigation
Authentication: securely transmitting authentication data from the cardholder to the issuer, then delivering the response back to the acquirer
Capturing: deducting the correct monetary amount from the cardholder’s account
Settlement: facilitating the transfer of the payment into the payee’s account

Role of a Merchant Acquirer in Payment Processing

The merchant acquirer plays a crucial role in the payment processing lifecycle. Here’s a step-by-step breakdown of it:

Merchant Agreement: The merchant signs an agreement with the acquirer to accept card payments.
Transaction Initiation: When a customer makes a purchase using a credit or debit card, the merchant’s point-of-sale (POS) system or e-commerce platform sends the transaction details to the acquirer.
Authorization Request: The acquirer forwards the transaction details to the card network (e.g., Visa, MasterCard) to request authorization from the cardholder’s issuing bank.
Authorization Response: The issuing bank approves or declines the transaction and sends the response back through the card network to the acquirer.
Transaction Completion: If approved, the acquirer relays the authorization response to the merchant, allowing the transaction to be completed.
Settlement: The acquirer collects the funds from the issuing bank and deposits them into the merchant’s account minus any fees.
Reporting and Reconciliation: The acquirer provides transaction reports to the merchant for accounting and reconciliation purposes.

Acquiring bank, or acquirer The acquiring bank, or acquirer, is the financial institution that holds the merchant account and receives the transaction information from the payment processor. The acquiring bank is responsible for the authorization, clearing, and settlement of transactions.

Settlement After Authorization

Once a payment is authorised, the merchant acquirer takes over. The acquirer facilitates settlement with the card network, moving funds from the issuing bank to the merchant's bank. Only the acquirer can perform this step.

What is an issuing bank?

The issuing bank is the financial institution that provides you with your credit card and accompanying line of credit. It’s your credit card company. Issuing banks act as middlemen between you and the credit card networks by issuing contracts with cardholders for the terms of the repayment of transactions. For example, your issuing bank could be Capital One.

Acquiring bank — An acquiring bank, or the merchant’s bank, is a bank that registers with a card association such as Visa and Mastercard. The acquiring bank plays a role in accepting credit card transactions on behalf of the merchants. They manage merchants’ accounts, overseeing activity, request authorization, deposit transactions, and chargeback responses.

Role: Facilitates transaction authorization and settlement.
Relationship: Manages merchant accounts and services.
Settlement: Collects and deposits funds from issuing banks into merchant accounts.
Authorization: Sends transaction approval requests to issuing banks.

BANK ACC VERIFICATION

PROBLEM Slow 1-3 day microdeposits. Sharing way too much PII with third-parties for non-manual bank acc verification methods. Unbanked or banked by cartel.

SOLUTION Tokenized deposit transfers for instant microdeposits. CB uses wallet balance to update excel spreadsheet managing customer bank account balances. IDN mint/burn/swap book-entry.

Mint/burn/transfer blockchain book-entry to update bank excel spreadsheets. Blockchain v card network v ACH

Toda Hora

Banco AV Villas

Banco de Bogotá

Banco de Occidente Credencial

Bancolombia

Davivienda

Granahorrar Bank

Bank of the Republic (Colombia)

ach 
1. Originator initiates a debit or credit payment order to the ODFI
2. ODFI transmits the payment information to the ACH operator
3. ACH operator receives data from the ODFI and sorts the entries by routing number
4. ACH operator transmits the entries to the RDFI
5. RDFI receives, processes, and posts the ACH data to the receiver account on settlement day

ACH TRANSFER
1. The merchant provides the amount due.
2. The customer provides authorization for the merchant to initiate payment.
3. The ODFI debits the customer's account and sends the ACH files to the ACH operator.|
4. The ACH operator routes the ACH files to the receiving bank (RDFI).
5. The RDFI processes the payment.
6. The funds clear and are deposited into the merchant's account.

Issuer → Scheme → Acquirer → Processor → POS Terminal

The first step happens when a customer makes a purchase using a credit or debit card at either a physical point of sale (POS) terminal or an online checkout. The payment gateway or POS terminal captures the transaction details and sends them to the payment processor.
The payment processor transmits the transaction details to the acquirer.
The acquirer sends the transaction data to the card network.
The card network relays the transaction information to the issuing bank (this is the bank or financial institution that issued the customer with their credit or debit card).
The issuing bank verifies the card details and checks whether the customer has funds available in their account. Based on this information, the issuing bank will either approve or decline the transaction.
This response is then sent from the issuing bank back through the card network to the acquirer and payment processor.
If the transaction is approved, the issuing bank transfers the funds to the acquirer.
The acquirer deposits the funds into the merchant’s account.
The payment processor ensures that all transaction data is recorded and shared with all parties.