How do mobile payments work?

There are a lot of complicated players involved when your customer hits 'pay'.

At Judopay, we’re looking to simplify that process for our customers. Here’s what you need to know about mobile payments.

Here’s a diagram of all the players in a payment cycle:

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First, and most importantly, there is your customer.

The person with the credit or debit card, the device to make a payment. They are providing money for the good or service.

Next, there is the merchant. This person accepts payment for the good or service they are delivering. The merchant is a business selling the good or service.

In order to accept payments, merchants need to be joined up with the card schemes, like Visa or Mastercard. These are networks that connect millions of cardholders with millions of merchants across the world. Meaning you can be in different geographies and use the same card to pay. They don’t hold any of the funds, all they do is provide the communication infrastructure between various parties.

Back to the merchant, in order to have a relationship with the card scheme, they need an acquirer. An acquirer takes responsibility for the merchant being able to accept card payments. We’ll come back to that later when we talk about different transaction types.

Back to the customer (or the cardholder). They’ve been issued this card by an issuer. This is the bank or institution that takes responsibility for the cardholder side being creditworthy to complete the transaction. When the cardholder presents their card for payment, the issuer guarantees those funds are guaranteed back to the merchant. Again, this is all done through the card schemes.

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Let’s take an example and show how the flow of funds and information goes through these parties:

Step 1. The customer takes out their card ready to pay. They begin to process a payment. We’ll leave aside whether that’s card present or card not present, and come back to define these later.

Step 2. The customer has submitted their card details somehow to the acquirer. The acquirer sees that information and passes it on to the card schemes, who pass it on the issuer.

The issuer will then decipher whether there are enough funds in the account to cover the payment, whether the card was stolen and whether the issuer is comfortable with the transaction – perhaps, for example, the transaction is happening in Dubai, but the customer has never been to Dubai, therefore the issuer is not comfortable processing the transaction.

The issuer will then send a message saying ‘yes’ they have enough money ‘no’ the card has not been stolen and ‘yes’ we guarantee we’re going to provide these funds to the card schemes. The card schemes then pass this message back to the acquirer. And the acquirer routes the message back to the cardholder through some sort of Gateway, like Judopay.

With all these signals in place, it means that the amount required for the transaction is settled. That means the funds move from the issuer, through the card schemes to the acquirer who eventually gives it to the merchant.

The issuer, acquirer and card schemes all charge fees for this transaction. Card scheme fees are called the interchange and scheme fees. This movement of funds happens in batch transactions, often overnight, and is incredibly secure. Most importantly, if something goes wrong, there is an established, known process for working through any sort of disputes. That’s really what makes card schemes so powerful - they can help globally settle a dispute in a known way.

So, what we’ve really simplified so far, is the relationship between the cardholder and the merchant. We touched briefly on card present and card not present.

Card not present has nothing to do with whether the customer is there or not but instead is about whether someone has entered their pin on an EMV certified chip and pin device. EMV is the agreed industry standard on how anyone can accept a transaction through this process.

With card present transactions, you put your card in a card reader and enter your pin. That data comes through some level of a gateway, passing the information in a format card schemes, acquirers and issuers can understand. Previously that was through a dial-up, much like dial-up internet. But now it’s done through a connected device.

This is considered highly secure because the customer has provided their pin. The pin is associated with the card – it’s a dual authenticated process. And this is the cheapest way of completing a transaction.

The process gets more complex when you move into the card not present environment. Card not present is determined by no chip and pin being used.

Let’s walk through a card not present transaction.

Let’s say you book a taxi online, through a website. On their website, they have a form to capture card details. They take those card details, and that data goes through a Gateway. A gateway is a type of company created to take card not present transactions and route through the existing infrastructure.

Possibly something acquirer should have been able to do. However, the technology used is built from the 70s and 80s. Highly secure, highly robust and very difficult to change.

So when people move from card-present transactions to paying for things on the internet with tons of browsers, formats, and devices, there’s an opportunity for tech-savvy gateways to appear and streamline that data, passing it back to the acquirer and card schemes in a way they can understand.

Note, gateways are now an added step because the acquirer is still involved.

In the mobile world, you have the same thing. A gateway within a mobile app that allows you to process the payment.

Judopay combines the gateway all the way down the acquirer to make it very simple, to keep fees low and to keep the process simple and to make sure you get the best process possible when interacting with this complex set-up.

Judopay is rare in providing both a gateway and acquiring service.