New Payments Startups Face An Uphill Battle To Disrupt The Massive, Entrenched Credit-Card Processing Industry

The credit-card industry processes a massive volume of transactions — about $US2.7 trillion in 2015 in the US. With so much money in play, it’s no wonder that a host of startups are trying to carve out a niche for themselves and offer services to merchants (e.g., mobile point-of-sale hardware and software) and consumers.

But the credit card processing industry isn’t going to change over night. These startups are entering into an extremely complex and entrenched space.

In a new report from BI Intelligence, we look at the complicated series of interactions among different legacy players that powers each credit card payment, outlining the five essential links in the credit credit payment chain. We explain what each of these players do, and how much value they add, and explain why certain parts of this chain are particularly vulnerable to disruption.

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Here are how the 5 main types of businesses in payments work together:

  • Acquirers/processors:Acquiring banks, such as Bank of America or Wells Fargo, are members of card networks like MasterCard and Visa, and are responsible for providing merchants with most of the systems they need for accepting card payments. Processors are responsible primarily for data transmission and data security. We lump processors in with acquirers because some acquirers process transactions in-house.
  • Independent sales organisations and merchant service providers: ISOs and MSPs are entities that sell payment-processing services to merchants on behalf of acquirers/processors, but are not banks. There is no significant difference between an ISO and an MSP. MSPs are registered with MasterCard while ISOs are registered with Visa.
  • Issuers: Issuing banks, or issuers, provide consumers and businesses with debit and credit cards connected to checking or credit accounts.
  • Card networks: Card networks like Visa or Discover act as a kind of hub within the card-processing ecosystem and serve two main functions: routing transactions between issuers and acquirers, and setting the rules by which the network of merchants, acquirers/processors, and issuers operates.
  • Gateway providers: E-commerce companies have certain special requirements for running payment-card transactions. Gateways like Stripe act as the portal through which e-commerce merchants connect to acquirers.

In full, the report:

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