An Introduction to the Payments Industry

TL;DR

The payment processing system involves four parties - the consumer, issuer, acquirer, and merchant. Visa, MasterCard, and American Express dominate the industry, with Visa processing the most transactions.

Transcript

Gaby Lapera: The whole way that payment processing works is, you have four distinct parties involved. You have the issuer, the acquirer, the consumer and the merchant. Do you want to talk a little bit more about that, Maxfield? John Maxfield: Yeah. You know when you talk about, what are payments, or, what is payments -- I don't even know, to be hon... Read More

Key Insights

• 🥳 The payment processing system involves multiple parties and is facilitated by companies like Visa, MasterCard, and American Express.
• 🍉 Visa is the top player in terms of transaction volume and value, followed by MasterCard, while American Express has a smaller market share.
• 🔁 Visa and MasterCard operate on an open loop system, while American Express operates on a closed loop system that includes banking services.
• 🤱 American Express earns income from net interest in addition to service fees.

Questions & Answers

Q: How does payment processing work?

Payment processing involves the consumer making a transaction using their credit card. The payment system connects the consumer's bank, the merchant, and the respective banks, facilitating the transfer of funds from the consumer's bank to the merchant's bank.

Q: Who are the major players in the credit card industry?

The major players in the credit card industry are Visa, MasterCard, and American Express. Visa processed the highest number of transactions, followed by MasterCard, while American Express had fewer transactions but still a significant market presence.

Q: What is the difference between an open loop system and a closed loop system?

In an open loop system, like Visa and MasterCard, the companies provide transaction connections between parties and earn money through service fees. American Express operates on a closed loop system, where they not only provide transaction connections but also offer banking services and earn income from net interest.

Q: How does American Express's business model differ from that of Visa and MasterCard?

American Express earns income from both service fees and net interest, unlike Visa and MasterCard, whose income primarily comes from service fees. American Express also houses the credit card loan itself, receiving interest payments directly, while other companies rely on banks to handle these loans.

Summary & Key Takeaways

• Payment processing involves four parties - consumer, issuer, acquirer, and merchant - and is facilitated by companies like Visa, MasterCard, and American Express.

• Visa processed 98 billion transactions worth $4.7 trillion in 2014, followed by MasterCard with 60 billion transactions and $3.3 trillion. American Express processed 6.7 billion transactions worth $1 trillion.

• Visa and MasterCard operate on an open loop system, while American Express operates on a closed loop system, providing both banking services and transaction connections.