One of the most confusing areas involving credit card processing and payments is knowing all the different people involved with moving and handling transactions. Some share similar names and others share similar functions.

Acquiring Bank (Merchant Bank)
A Merchant Bank, also known as the Acquirer or Acquiring Bank, is the financial institution that provides a Merchant with a Merchant Account. The Merchant Bank handles acceptance and payment of credit card transactions to the Merchant’s bank account. In a way, they front the money for the Issuing Banks, depositing the Merchant’s funds prior to the actual transfer via Interchange from the cardholder’s Issuing Bank.
A Merchant Bank pays the Issuing Banks and Card Associations fees for transactions processed on behalf of its Merchant Account holders. In return, Merchant Banks provide their services to Merchants for a fee normally called a Discount Rate.

Merchant Services Provider (MSP)
If the Merchant did not set up their Merchant Account directly with a Merchant Bank, then the Member Service Provider/Independent Sales Organization will be the organization to quote a Discount Rate to the Merchant. There are several different types of organizations that can provide this service to the Merchant: Merchant Banks, Member Service Providers, Independent Sales Organizations and Processors.

The Merchant Services Provider will quote the Merchant a Discount Rate and setup account information with both the Front-End and Back-End Processors to handle the Merchant’s credit card transactions. The Merchant Services Provider is responsible for all communications and relationships between the Merchant, Card Associations, Processors and Merchant Banks.

Member Service Providers/Independent Sales Organizations represent a variety of Merchant Banks and are authorized to setup Merchant Accounts on behalf of these banks. There are literally thousands of these organizations that provide their services both online and in-person. These organizations can be thought of as extended sales forces for the Merchant Banks. For a sample of the extent of these organizations you can do a Google search for “merchant credit card account”.

Payment Gateways
Payment Gateways connect the Merchant to the bank or Processor that is acting as the front-end connection to the Card Associations. They are called Gateways because they take many inputs from a variety of different applications and route those inputs to the appropriate bank or Processor. Gateways communicate with the bank or Processor using dial-up connections, Internet-based connections and/or privately held leased line connectivity.

Besides offering simple data transportation, Gateways can offer additional value added services such as advanced reporting, auditing and fraud control. Different Gateways support different Point-of-Sale (POS) and Property Management Systems (PMS), banks, Processors and merchant types.

Issuing Bank
Also known as the Issuer, this is the financial institution that physically provides a credit card to an individual for use. These institutions promote the use of these distributed cards and charge the cardholder interest and fees for the use of the card.

The Issuing Bank shares in the Interchange Fee charged by the Card Associations. Most of the power in the credit card industry resides with the Issuing Banks. Some examples of current Issuing Banks include: Bank of America, Capital One Bank, Chase Manhattan bank Citibank and MBNA America Bank.

Card Associations (Brand)
These are organizations such as Visa, MasterCard, American Express and Discover that work in conjunction with various local, state, territory and federal government agencies to make the rules regarding acceptance and use of credit cards. These rules include security regulations, data requirements and interchange rates. American Express and Discover issue cards directly to the consumer without a bank intermediary.

Processors
Processors provide a point of connectivity for the Merchant to authorize and settle its credit card transactions through the appropriate payment network for each of the card types accepted by the Merchant. Some Processors have also aligned or purchased Merchant Banks in order to act as a Merchant Services Provider to its Merchants. All transactions require a Front-End and a Back-End Processor. In some cases, the Back-End Processor and Front-End Processor may be one and the same.

Front-End Processors handle the up-front authorization of a credit card transaction. They have connectivity to all of the Card Associations and route transactions to the appropriate network for authorization. The Front-End Processor is the Merchant’s point of connectivity for authorization and settlement of transactions. When a Merchant settles or submits a batch, it is sent to the Front-End Processor who then routes the batch to its Back-End Processor.

Back-End Processors receive settlement batches from the Front-End Processor. Transactions from all Merchants are grouped together by BIN (Bank Identification Number) range and submitted to the appropriate Issuing Bank on a scheduled time frame.

Processors are paid for their services on a per transaction fee basis. The fee is included in the Merchant’s Discount Rate.