Cards 101: Card Payments
This is the second post in our Cards 101 series. You can read the first post here.
What is a card payment?
Card payments have become a ubiquitous part of life and business. Any cardholder can securely pay anywhere around the globe in near real-time without exposing their account details or having to have a trusted relationship with that merchant. Cards are most commonly used to power purchases, cash withdrawals, and refunds.
- Purchase: A payment to a "merchant" in exchange for goods or services rendered
- Cash Withdrawal: A payment made in exchange for physical funds being provided
- Refund: A payment from a merchant made when goods or returned or services were not rendered
Card payments use a format called ISO8583. This provides a near-universal messaging format for card payments to be initiated by an acquirer, run through a card network, and processed by an issuer. Each card payment event is made up of a request made to an issuer, followed by a response generated by the issuer (though the issuer does not always have to send a response back). Card payment events are defined by the message type indicator (MTI). The MTI is made up of 4 digits including the ISO8583 standard, the message class or payment event, the message function, and the message origin.
- Authorization (x1xx) - A request to "hold" funds on an account for later processing
- Transaction (x2xx) - A request to post a transaction to an account
- Reversal (x400) - A request to undo a previous card payment event
While the message format of each request and response use the same format, some fields are populated for the request while others are populated in the response. Key request fields include the card PAN, the transaction amount, details about the card acceptor, and the type of card payment. The most important part of the response generated by the issuer is the response code which tells the card acceptor if the payment was accepted, declined, or if additional actions are needed.
Card network types
Card networks can be categorized into two different approaches: dual message and single message.
Dual message systems
Dual message systems execute a card payment using a two-step process of authorization and clearing. This type of network us used for credit cards and signature debit cards such as Mastercard and Visa. When a card is used for a dual message card payment, an authorization request (x1xx) is made. This step is when the issuer decisions the request. If the request is approved, then an authorization hold is placed on the account. Authorizations happen in near real-time using online processing. Authorization is followed by a request to "clear" the prior authorization with a transaction. Clearing (x2xx) is done using batch files and does not allow for decisioning to be performed by the issuer. Processing of the clearing file involves clearing prior authorization holds which have been "cleared" and posting the final transactions as needed.
Single message systems (SMS)
Single message systems (SMS) execute a card payment using a single step process. This type of network is used for PIN debit and ATM transactions such as Maestro, Pulse, etc. When a card is used for a single message card payment, a transaction request (x2xx) is made. As this is the only step of the card payment, the issuer decisions the request. If the request is approved, then a transaction is posted to the account. All SMS requests are processed in near real-time using online processing.
Issuer processing
Issuer processors are a special type of service provider that provide connectivity with card networks, card management, and card payment processing for an issuer. Using an issuer processor removes the need for an issuer to build out card capabilities or connect with different card networks. A key part of what an issuer processor does for most issuers is decision card payments.
Card payment decisioning
Issuer decisioning of a card payment includes several key steps to ensure that a card payment is both legitimate and acceptable. Below is a list of common types of checks which are performed during card payment decisioning.
| Category | Question |
Example Checks |
| Card payment | Is the request legitimate? | Card expiry match, cardholder name match, billing address match, security code match, PIN match, cryptographic match, 3DS, transaction fraud decisioning, etc. |
| Card | Is the card in a usable state? | Card existence check, Card block check, card expiration check, card state check, card token state check, card level controls check, etc. |
| Account | Is the underlying account in a usable state? | Account block check, account level control check, balance check, etc. |
| Product | Does the product allow for the requested use? | Product level control check, etc. |
| Other | Are there any additional checks to be performed? | SKU check, expense policy check, credit risk decisioning, etc. |
Key things to look for in an issuer processor
While issuer processors have existed for decades, the card payment landscape is always evolving and issuer processors are too. Modern issuer processors are expected to offer several key features to ensure that cardholders want to use their card while doing so securely. Key features for an issuer processor to offer include the following:
- PCI-compliant cloud: Issuers don't want to take on the burden of being PCI-compliant. Issuer processors that host their platforms in PCI-compliant cloud infrastructure give you the ability to easily access card capabilities without the hassle.
- Flexibility: If all card products were the same, only big players would be able to survive. Issuers need ways to stand out in a crowded market. By having flexibility in your card payments, you can create unique propositions that stand out from the crowd.
- Global coverage: You don't know where your business might take you. Some issuer processors only operate in one country and can leave you scrambling if you plan to expand into additional markets.
- Performance: The typical amount of time given to an issuer to decision a card payment is about 6 - 7 seconds. Your issuer processor should be striving to drive processing time towards zero.
- Scalability: If your issuer processor can't scale to your biggest demand times, then neither can your product. The ability to maintain performance at peak demand means your customers can rely on your cards no matter what.
How E6 lets you take card payments to the next level
E6 has been a pioneer of card products for over a decade. We pride ourselves on our ability to make card payments anything but ordinary. Whether you want to create a never-before-seen proposition or aren't getting everything you need from your current processor, Episode Six is here to help. Our platform gives you all the basics of card payments along with the flexibility to make them what you need them to be.
Whether you're looking to add a card to an existing product, or launch a new type of card, Episode Six can make it happen.
We specialize in helping financial and non-financial technology companies expand into the card space. We offer the modern technology and support you need to:
- Launch prepaid, virtual or physical cards for consumers or business. Add any configurations and controls you want, from spend to location, rewards and interest.
- Launch quickly and efficiently, without being bogged down by legacy systems.
- Customize your offering, whether you’re targeting consumers with cash back rewards or businesses with corporate expense tracking.
- Take control of your program from day one, with minimal reliance on third-party service providers.
About Episode Six
Episode Six is a global provider of enterprise-grade card issuing and ledger infrastructure for financial technology companies, banks, and brands. Episode Six delivers the innovative capabilities needed to compete with disruptors and lead the market. Flexibility, adaptability, and resilience are built into the core of Episode Six's platform, ensuring clients maintain a market-leading position. Episode Six operates in over 45 countries, powering 70+ enterprise customers globally, with an expanding team located in the US, Canada, UK, Europe, Japan, Singapore, Hong Kong, Australia, and India. Investors include HSBC, Mastercard, SBI Investment Co Ltd, Anthos Capital, Avenir, and Japan Airlines.