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Education

For example, when a merchant accepts a Visa cardholder's
card for payment, the merchant's acquirer will turn to the
Visa network for an authorization from the cardholder's
issuing bank to be sure that the card is valid and has
Legal ease: a balance sufficient to pay for the transaction. Visa's
network, like others, is prized for its speed and accuracy.
The second primary role of a payment network is to create,
manage and build a brand. Ultimately, issuers and acquirers
on a given network benefit only when people actually use
cards that process transactions on the network. Networks
Who's really who in the promote their brands through advertising and incentives.
Can you think of a payment network that has sponsored
a recent Olympics? If you can, the network did its job in
payment processing promoting its brand.

Issuing bank
biz? Debt, glorious debt! That's the business of issuing banks;

and pay interest to them. Acquiring banks are, in a sense,
By Adam Atlas they issue cards to you and me so that we can incur debts
Attorney at Law enablers for us to use the cards we have been issued by
issuing banks.
hat's the difference between an agent and
an ISO? When does an ISO become a super- If you pay your credit card bill in full and on time every
ISO? And what distinguishes a processor month, you might think the issuing bank is not earning
W from an acquirer? The reality in the acquir- from you. That is not correct. Issuing banks earn a majority
ing industry is that parties may use certain terms to of the interchange merchants pay to acquiring banks on
describe themselves, but the roles they play might not all your purchases. Issuing banks assume the credit risk
match textbook definitions of the terms they have chosen. of cardholders who spend but don't pay. Issuing banks
also contract with payment networks to license the right
This comes as no surprise given that the acquiring to brand their cards and access the network.
industry consists of essentially a banking service that is Acquiring bank
sold, operated and serviced primarily by nonbank entities
such as processors, ISOs and agents. When party A sells Acquiring banks are in the business of obtaining funds for
the services of party B, it's often the case that party A uses merchants from issuing banks. Acquiring banks contract
different terms than those used by Party B to describe the with payment networks for the right to use their brands
same services. and access their networks. Acquiring banks assume the
risk of fraud, chargebacks and other merchant losses (but
The purpose of this article is to provide rough definitions they often outsource that risk to processors and ISOs).
of some of the key roles in the acquiring industry and a Acquiring banks contract with processors to handle the
general sense of the typical rights and obligations of each. processing of their transactions and ISOs to assist in sales,
This summary should not be used as a definitive guide; service and risk management of merchants.
the real rights and obligations of parties are set out in their
contracts and the applicable law. ISO

Payment network An independent sales organization (ISO) is essentially
an agent of an acquiring bank to whom the bank has
Visa, Mastercard, AmEx, Discover, JCB and China Union outsourced certain of its duties, such as solicitation, service
Pay are examples of payment networks. While each and, perhaps, liability for merchant fraud, chargebacks
payment network has unique characteristics, most of and other losses. There are roughly 2,300 ISOs in the
them share the similarity of providing two key services world (I have posted a slightly dated list of them at www.
to members. paymentsbusinessisdeas.com).

First, they maintain a network of issuing and acquiring A registered ISO is an ISO that has been sponsored by
institutions (they are not always banks). The network an acquiring bank, has met specific payment network
serves as a reliable basis through which transactions can requirements, and is thereby permitted to market services
be processed and through which financial undertakings under its own name. An unregistered ISO is an ISO that
can be recorded. has not been granted payment network registration and is
required by payment network rules to sell under the name

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