Credit Card Processing Market Participants Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party. Visa® and MasterCard® Associations Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates (see Interchange Banking Fees). Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive any portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express, Discover and JCB are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies. Card Issuing Member Banks Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction. Acquiring Member Banks Acquiring Member Banks are the financial institutions that deposit funds into a Merchant's account and collect funds from the Card Issuing Banks. All merchant accounts must be sponsored by a Visa/MasterCard Acquiring Member Bank which ultimately holds all liability associated with the account. Acquiring Member Banks are responsible for insuring that their contracted Member Service Providers (MSP) are in compliance with Visa and MasterCard rules and regulations. The Acquiring Bank for Payment Logistics is BancorpSouth Bank. Processors There are typically two types of processors that are involved in a credit card transaction; front-end processors and back-end processors. Front-end processors are connected to Visa and MasterCard Member Banks and provide the authorization and the settlement of transactions (so that funds will be deposited into a Merchant’s Account by the Merchant Acquiring Bank). Back-End Processors accept settlements from Front-End Processors and transfer the funds from the Card Issuing Bank to the Merchant Acquiring Bank through the Federal Reserve Banking system. In general, the processing networks house huge servers and are responsible for authorizing (validating) credit cards in real-time and transmitting data back and fourth between banks and merchants. In many cases, certain Processors involved in a transaction will act as both the Front-end and Back-end processors. Member Service Providers (MSP) A Member Service Provider (MSP) is an organization contracted by Visa/MC Acquiring Member Banks to provide merchant services on their behalf. A MSP can be an Independent Sales Organization (ISO), a Bank, or other Financial Institution which is not a member of Visa or MasterCard. MSPs are responsible for contracting with the Merchant, setting up the merchant account through the Acquiring Member Bank and credit card Processor, and managing the relationship with the customer. Typical services may include customer support, technical support, risk/fraud monitoring and account reporting. The level and type of service a MSP provides will depend upon their contract with the Acquiring Member Bank. Member Service Providers must be registered by their Acquiring Member Bank with Visa and MasterCard. Gateway Providers Gateway Providers facilitate Internet based transactions. They provide a secure means of transmitting credit card information to and from the various processing networks. In addition, they securely store cardholder information so that merchants have a means of accessing transaction data without the liability of storing such data themselves. Some prominent Gateway Providers are Verisign, Authorize.net, YourPay by LinkPoint, and Plug’n Pay. Click here to learn about the credit card processing Market Cost Structure