The Major Players in the Payments Ecosystem
Merchants represent the consumer’s point of contact with the payment ecosystem. Transactions typically start at a merchant’s point of sale (POS), which could be a real-world terminal or an online site – any place with the capability of accepting payment cards (credit or debit).
Acquirers help merchants accept payments on behalf of a major payment network. A transaction is directed from the merchant’s POS to an acquirer's processor, possibly utilizing a gateway. The transaction then flows to the network and then to the issuer processor.
Payment networks like Visa, MasterCard, Discover and American Express have built the massive infrastructure, also known as “payment rails,” for processing transactions. Network rails connect consumers, merchants, issuers, processors and banks globally.
Issuer processors intermediate payment information and approve or deny transactions according to applicable rules. When an issuer approves or declines a transaction, the notification is routed simultaneously to the network and to the acquirer. (Marqeta is best described by the term “issuer processor”; the Marqeta Platform works with all the players in the payment ecosystem.)
Banks represent the beginning and endpoint of the payment process. Under Visa and MasterCard operating rules and regulations, only a bank can join the Visa or MasterCard network. Banks are also issuers of cards (they make credit decisions), but their most important role in the transaction is actually moving money from the accounts of consumers to the accounts of merchants.
Payments Terminology: A Glossary
ACH (Automated Clearing House): The primary electronic network for money movement in the United States; it automates the movement of money between banks.
Acquiring Bank: An acquiring bank provides merchant accounts that allow a legal entity to accept card payments and works in conjunction with the acquirer processor. In some cases the acquiring bank and acquirer processor are a single entity.
Acquirer Processors: Acquirer processors connect directly with merchants, the network and the acquiring bank, or via a payment gateway, to facilitate payment at the merchant. They provide the technical capabilities to create the system of record to communicate with authorization and settlement entities. In some cases the acquiring bank and acquirer processor are a single entity.
Assessment: A fee charged by the network to both issuing and acquiring banks in addition to the interchange fee. Assessments are how the networks generate revenue, taking a fee from each bank for every transaction.
Authorization: A fee charged by the network to both issuing and acquiring banks in addition to the interchange fee. Assessments are how the networks generate revenue, taking a fee from each bank for every transaction.
Authorization Code: An authorization code is a six-digit number that serves as the record for the credit, debit or stored value card approval.
Available Balance: Every payment card has an available balance that governs its purchasing power; this factors into the authorization process.
AVS (Address Verification Service): A system to verify a user’s address at varying levels of detail, such as the cardholder’s ZIP code, street address, city or state.
Basis Points: One basis point, often referred to with the shorthand “bips”, is equal to 1/100th of one percent of the transaction amount. One percent, therefore, equals 100 bips.
BIN (Bank Identification Number): The first four to six digits of a card representing the identification number of the issuing or acquiring bank.
Campaign: At Marqeta, a “campaign” refers to a group of stores or merchants. A “campaign” can also accept parameters for defining when a specific offer is active.
Capture: The process of finalizing authorizations and the initiation of funds transfers by a merchant.
Chargeback: A “chargeback” is a dispute of a specific transaction.
Clearing: The process of exchanging financial transaction details (but not actual funds) to facilitate the posting of that transaction to a cardholder’s account and reconciling an issuing bank’s settlement position.
Closed-Loop: In a closed-loop payment system, funds can only be used at a defined set of locations or merchants.
Discount Rate: Also referred to as the add on rate, the discount rate refers to the interest that the acquiring bank adds on top of the interchange fee and assesses to the merchant. The discount rate is generally tiered and falls in the range of 40-50 basis points though can be as low as 20-30 basis points.
Enterprise Partners: Payment programs built for business-to-business applications (for example, for expense payment).
FBO Cardholder Funds: “For benefit of” (FBO) funds are held in an issuer bank account for stored value card programs.
Fees: Charges assessed by one entity to another.
Fee Transfers: When working with the Marqeta API, fee transfers move funds from a user’s general-purpose account (GPA) into a partner account.
Gateway: Special purpose software platform that provides an interface between merchants and acquiring institutions.
GPA (General Purpose Account): When working with the Marqeta API, funds in a GPA are “open-loop” funds that can be used at any merchant, subject to authorization controls. Most Visa and MasterCard accounts access GPA funds.
GPA Orders: When working with the Marqeta API, a GPA Order refers to the direction of funds into a user’s general-purpose account (GPA).
Idempotency: Refers to an operation that has no additional effect if it is called more than once with the same input parameters; in the payment world, idempotency is important because it prevents requests from being processed repeatedly in the case of multiple, inadvertent submissions.
Interchange Fee: Payment networks like Visa and MasterCard determine the interchange fee for processing payment cards transactions. Interchange fees are typically paid by the merchant’s bank (the acquirer) to the customer’s bank (the issuing bank). In the United States, interchange fees average between one and two percent of the transaction (200 bips).
Issuer Processor: Connects directly with the networks and issuing bank to provide the system of record, manage issuance of cards, authorize transactions and communicate with settlement entities.
Issuing Bank: The issuing bank enters into a relationship with the cardholder, and enables cards on a given network. The issuing bank fills three primary roles in payment processing: it is a “network sponsor,” which means it can issue cards on a given network; it is a holder of prepaid funds (for example, for gift cards and other non-credit cards); and it is a “settlement point,” managing a consumer’s card account and paying out to the merchant's account after a purchase.
KYC Verification (Know Your Customer): To comply with regulatory requirements and as a protection against fraud, issuer processors can run a “know your customer verification” to verify the identity of potential cardholders.
Ledger Balance: The term “ledger balance” refers to the amount of spendable funds.
Merchant: A merchant simply refers to any business that accepts card-based payments via a physical swipe (at the POS in the real world), by entering payment data manually or via a virtual swipe online.
Merchant Rewards: Refers to funds allocated by merchants to power rewards programs (and accounts) that promote their brands (and partners’ brands) and to encourage brand loyalty.
MSA (Merchant Specific Account): A Marqeta term used to describe funds in a merchant specific account that are allocated only for specific merchants or stores.
NACHA: The National Automated Clearing House Association, NACHA is a not-for-profit organization that manages and governs the ACH Network, the backbone for the electronic movement of money and financial data in the United States. NACHA represents nearly 11,000 financial institutions across the United States.
Offer: A Marqeta term referring to a deal that is available for one or more stores; specifically, offers refer to bonus funds given when a customer spends a specific amount. For example, a merchant might offer a specialpromotion where customers who spend $50 receive $5 towards their next purchase.
Offer Order: A Marqeta term; the “offer order” connects a specific offer to a specific user with information that identifies the user, the offer and a unique order number to facilitate fulfillment of the offer.
One-Time Use Virtual Card: To combat fraud, many processors generate one time use virtual card numbers good for only one transaction (the number then becomes inactive).
ODFI (Originating Depository Financial Institution): The ODFI functions as the interface between the ACH network and the originator of the transaction, confirming that transactions comply with the rules.
Originator: Any institution or person initiating a debit or credit transaction through ACH.
Peer-To-Peer Transfer: Occurs when two users transfer funds between two different accounts on the Marqeta system (also known as “peer transfers”).
Pending Credits: A pending credit is unavailable for use by the card or accountholder and does not affect purchasing power; typically, a pending credit results when an ACH load that has been accepted but the funding hasn’t yet cleared.
Private Label Card: A card that is accepted by only one merchant.
Program Manager: Businesses that manage a card program on behalf of the issuing bank. The Program Manager is responsible for defining the program, marketing to consumers and merchants, operating the program, and managing its profitability. The program manager typically is responsible for establishing relationships with processors, banks, payment networks and distributors and for establishing pooled account(s) at banks.
Receiver: An organization or person that authorizes the originator to initiate an ACH transaction, either as a debit or credit to an account.
RDFI (Receiving Depository Financial Institution): The corollary to the ODFI, the RDFI receives the ACH transaction from an operator and credits or debits funds from their appropriate accounts.
Reconciliation: An accounting process to compare two sets of records to ensure the figures are in agreement and are accurate. Reconciliation is the key method for determining whether the incoming or outgoing funds in an account match the amount spent/returned and that the two values are balanced at the end of a given recording period.
Return: An ACH transaction that was disputed or rejected by the issuing bank.
Settlement: The process by which a merchants’ (acquirer) and a cardholders’ (issuer) banks exchange financial data and value (real funds).
Store: In the world of payment technology, a “store” refers to any place a merchant accepts payments. For example, a retailer might have a chain of (physical) stores plus one or more online “stores” and can accept card payments at each of them. There may be many stores (both real-world physical locations and e-commerce sites) to a given merchant.
TID (Terminal Identifier): The TID is used to uniquely identify a terminal originating a transaction, which can be a device with a card swipe capability or an e-commerce site.
Users: Broadly defined as a Marqeta account holder.
Virtual Card: An online counterpart to a payment card, generated with a unique card number to settle a particular transaction by an authorized user. Typically, once the virtual card is used (i.e., its number is used for an online transaction), the card number is rendered unusable. Virtual cards are significant weapons in combatting fraud.
Security & PCI Compliance
A key requirement for every participant in the payment system is information security, which for the vast majority of users takes the form of the Payment Card Industry Data Security Standard (PCI DSS). This is a proprietary information security standard for merchants and card issuers handling credit cards branded with the major network players: Visa, MasterCard, American Express, Discover (plus JCB in Japan). The standard was established to tighten security around cardholder data to reduce the potential for fraud.
The Marqeta Platform supports the PCI DSS and works hard to ensure safety and security of our customers’ information, their cardholders’ information and the funds involved in transactions.
Settlement & Banks
As an issuer processor, Marqeta works as an intermediary with every component of the payment system, and the Marqeta Platform plays a key role in facilitating and settling transactions with the banks that move money from cardholders to merchants through payment card networks. The process begins when our Platform receives an authorization request. We ascertain if the card is valid, if it’s in good standing and if it has the required funds. If the answers are “yes,” we approve the transaction; if no, we don’t. For approved transactions, the merchants sends a settlement message through the card network, which in turns goes to the issuing bank which handles the transfer of funds from cardholder to merchant: settlement. Marqeta functions as the system of record for all transaction approvals and declines for our customers.