Introduction

This guide is designed to help users understand merchant services industry and business entities hierarchy in the system. It explains main concepts of the industry and the gateway required to process transactions.

Intended Audience

This guide will be useful for payment service providers that want to familiarize themselves with merchant services industry and its representation in the gateway.

Overview

Traditionally, businesses had accepted only cash payments from their clients. As the market evolved, payment cards became more and more popular with customers. Thus, banks and companies started providing financial and technical services to help businesses accept bank cards as a payment method. This resulted in the formation of merchant services industry.

In the guide, we will get acquainted with concepts and key players of merchant services industry, which are the following:

• Merchant – a business that provides goods and services to cardholders.
• Customer/cardholder – a client of a merchant that uses a card or bank account as a payment method.
• Bank – a financial institution that provides a bank account to a merchant or issues payment cards to cardholders.
• Processor – technical platform associated with a particular bank used for transaction processing.
• Reseller – a company or individual that brings new merchants from a particular business segment to payment service providers or promotes a merchant’s goods and services to its clients.
• Payment Service Provider – a company that serves as a payment gateway to a merchant for accepting multiple types of payments.
• Payment gateway – a technical platform provided by a payment service provider to resellers and merchants for accepting payments.

Merchants

In merchant services industry, merchant is an entity represented as a company, enterprise, organization or other business that sells goods and services.

In the gateway, merchant is an entity represented as a business instance that sell goods and services to cardholders.

For both merchant services industry and gateway, the main purpose of a merchant is to process credit card and direct debit transactions from its customers and receive money onto its bank account as a part of funding process.

Customers/Cardholders

In merchant services industry, cardholder is an entity represented as a business’ clients that wants to buy goods and services credit card and direct debit payments.

In the gateway, cardholder is an entity represented as a customer that makes recurring payments if recurring billing module is used. In this case, a customer becomes a separate entity within the gateway.

Banks

Banks are entities represented as financial institutions that provide bank services to their clients. They are divided into two groups – issuers and acquirers.

• Issuer is a financial institution that issues credit cards to cardholders and supports their bank accounts.
• Acquirer is a financial institution that issues accounts to merchants.

In merchant services industry, account is a bank account that allows a merchant to collect money from transactions as a part of funding process. Technically, it is represented as a merchant ID used to identify a merchant in acquirer’s processing system.
In the gateway, account is a subunit of a particular merchant. Depending on a merchant’s tier structure, they are represented as a location, store, department or a terminal. To learn more about merchant tier structures, please review Merchant Configuration Guide.
A network of banks forms a card association. Card associations are organizations that license bank credit card programs and perform operational functions for its members, including transaction processing and authorizations, interchange authorized amount is withdrawn from the card holder’s account and transferred to merchant’s account. The general practice is to do this at the end of the business day. There are two possible settlement mechanisms commonly referred to as terminal capture and host capture: When terminal capture is used, the information about each transaction to include in settlement has to be supplied at the settlement time (generally through a settlement file). When host capture is used, the underlying processing system (the host) keeps track of all of the transactions and it is usually sufficient to simply send a settlement message without including transaction details. " >settlements and fee processing. The two best-known bank card associations are Visa and MasterCard.

Resellers

In merchant services industry, reseller is a company or individual that fulfills one of the following purposes:

• It simplifies business and technical cooperation between merchants. Such resellers are represented as Independent Sales Organizations (ISOs), software companies and franchises.
  • Independent Sales Organizations (ISOs) are companies that buy accounts from acquirers and resell them to merchants. ISOs usually take care of different processes such as processing, liabilities, risk management, underwriting, etc.
  • Software companies are companies that develop transaction processing software and integrate their software with a payment gateway. After integration, companies provide transaction processing software to merchants and bring them to payment service providers.
  • Franchisors are companies that provide their brand and business model to merchants working in the same business segment.
• It brings new cardholders to merchants. Such resellers are represented as affiliates.
  • Affiliates are companies or individuals that promote a merchant’s goods and services to their clients via websites, portals, blogs, newsletters, emails and other common ways.

In the gateway, reseller is an entity represented as a separate record within the payment gateway. Depending on a reseller, its reseller record can be set up for the following purposes:

• To function as a grouping element for merchants and set up a set of standard settings for them within the system.
• To receive reseller commissions through funds remittance process.
• To receive affiliate commissions through split funding process.

Payment Service Providers (PSPs)

In merchant services industry, PSP is an entity represented as a company that facilitates different types of payment processing for merchants. Payment service providers allow merchants to avoid the bureaucracy of banks and processors, gain access to better technology and customer service and save on integration-related efforts. PSPs work with card associations and takes responsibility for merchant underwriting thereby taking responsibility for merchants’ transactions.

PSPs can work with resellers or directly with merchants. Resellers aggregate small merchants for the payment service provider. Otherwise, the payment service provider itself works as an aggregator for small merchants. This model enables PSPs to enroll and manage merchants, as well as present transactions as a single entity. In both cases, money from transactions is transferred onto an aggregated bank account and then distributed between merchants. To learn more about account aggregation, please review this article.
In the gateway, PSPs is an entity represented as a portfolio that manages technical connections with banks, processors and other external service providers. The main purpose of a portfolio is to create a standard behavior for a group of resellers and their associated merchants, creating a virtual gateway with its own settings within the actual payment gateway. A standard behavior may include settings for provisioning, branding, transaction processing, terminal updates and configurations, etc.

Payment gateway

In merchant services industry, a payment gateway is an entity represented as an online payment processing software. Such software uses secure channels and protects sensitive cardholder data (e.g. credit card numbers and bank account numbers) from unauthorized access. A payment gateway may be integrated with multiple banks and processors. This allows merchants to use one platform for all types of transactions.

In the gateway, a payment gateway is an entity represented as the system. The main purpose of the gateway is to become a universal management, payment processing and funding solution to merchants, resellers and portfolios.

UniPay consists of the following modules:

• UniCharge that is responsible for transaction processing and funding.
• UniBill that is responsible for managing recurring billing.
• UniRead that is responsible for processing transactions via terminals and POS systems.
• UniBroker that is responsible for data sanitation.

The payment gateway operates based on the following strict hierarchy:


Payment gateways can be of two types - transaction centric or customer centric. If a system is transaction centric, it handles one-time payments - both card present and card not present. In this case, only the transaction processing module is used. If a system is customer centric, it handles recurring payments associated with customers. In this case, both transaction processing module and recurring billing module is used. UniPay is a universal gateway, being both transaction and customer centric at the same time.

Now that we have familiarized ourselves with how the merchant services industry works, let us look at how merchants can obtain accounts.

Obtaining accounts

Merchants can obtain accounts in one of the following ways.

• Via acquiring bank. The bank starts the process of merchant’s underwriting. If results of underwriting are successful, the acquirer issues accounts.
• Via processor. A processor connects to the acquirer and the bank starts the process of merchant’s underwriting. If results of underwriting are successful, the acquirer issues accounts.
• Via PSP. PSPs may not only facilitate payment processing but also work as ISOs. Such companies become a link between the acquirer and the merchant during the process of underwriting. If results of underwriting are successful, PSPs resell accounts to merchants.

To learn more about merchant underwriting, please review this article.
After obtaining accounts, merchants need to integrate with a payment gateway to start processing card present and card not present payments.

Integration with a payment gateway

Merchants can integrate with a gateway in one of the following ways.

• Direct integration. Merchants have their own payment system that they integrate directly with a payment gateway.
• 3rd party integration. Merchants use a reseller’s transaction processing software that was integrated with a payment gateway. In most cases, this type of integration requires resellers to be present as a separate entity within the gateway.

Entities also use the payment gateway to internally interact with other entities, as well as externally interact with processors, banks and other service providers.

Interaction with the gateway

Internal interaction

For internal communication, users are used within the gateway. The gateway supports two types of users - human users and service users.

Human user is an entity represented as a certain person that interacts with the payment gateway user interface.

Service user is an entity represented as a software unit that interacts with the payment gateway API via API calls. Communication between a service user and the gateway is based on privileges, which are management API, processing API, billing API, TMS API and detokenization. For more information about privileges within the gateway, please review this link.
The payment gateway uses a permission-based privileges, permissions and access levels. — Data access - deals with data that a user has access to, for example, data associated with a particular merchant, reseller, etc. This is controlled by data access policy. — Functions - deals with functions that a user can fulfill within the various business processes implemented in the system. This is controlled by function policy." >security mechanism that provides various options of controlling how users with different security levels will access the system as well as perform different tasks. For more information about the security mechanism within the gateway, please review this link.

External interaction

Merchants need to interact with processors, banks and other service providers that are not present within the gateway as separate entities. To interact with service providers, merchants use a technical mechanism within UniPay - providers' profiles.

A provider’s profile is a set of configurations that determines how external interaction between a merchant and a service provider is done via payment gateway.