I took offence when I looked at the picture included in the article published on Wired.
The arduous path that he has carved out for a card transaction assumes a lot of unnecessary intermediaries that have included themselves within the picture.
For me the story can be simplified.
Credit card processing involved a minimum of five parties. The Issuing bank and its technology arm, the acquirer and its network and the scheme (Visa, MasterCard … ). Everyone else is about the realities of the ISO marketplace and the proliferation of parties offering added value services along the transaction path.
Remember a credit card transaction is simply
Add transaction amount, time, merchant etc.
Ask Acquirer for approval.
Acquirer passed to scheme
Scheme routes to Issuer
Issuer approves and sends back the authorization.
then if necessary sign receipt
That night batches of requests for payment are sent from the acquirer to the Issuer with the Scheme, reconciled and settled.
Then there is ACH. Yes the technology needs a modernization the functionality must be stream lined and ubiquity must be embedded in the pricing model.
Electronic checks that are facsimiles of hand written checks cleared through the Check 21 system should not be eliminated, they are efficient and provide a great personal audit trail. handling the paper should be pushed as close to the original transaction as possible so that personal accountability is induced. The person I handed the check to has the check. So if there is a problem I have to deal with him.
Otherwise all the necessary transactions are possible and with the move to STP “straight through processing” the ability to assure availability of funds can be assured.
What are most of the other schemes. First like American Express they are three party solutions with a man in the middle holding funds on account in a pre-paid scenario or capable of submitting as your proxy transactions into the ACH and card systems.
Yes the three party system is the most efficient. Unfortunately it has one problem, it is not open.
Visa and MasterCard, although viewed as restrictive, are open systems. They accept; any properly sanctioned bank as a member willing to abide by the rules and maintain sufficient reserved. For a new system to acquire this status either means they become a bank and meet those incremental regulations or they focus on building critical mass as American Express has proven can be done.
So as this next article concludes, what is can improve and probably is better than something new.
The Future of Money: It’s Flexible, Frictionless and (Almost) Free
- By Daniel Roth February 22, 2010 12:00 pm
- Wired March 2010
This is what I have done as the following snapshot indicates: