How payment systems work

[chushpan]

Payment systems are technologies and infrastructures that enable money transfers between participants (such as buyers and sellers). They play a key role in the modern economy, providing convenience, security, and speed of transactions. Let's look at the basic principles of how payment systems work.

1. Main participants of the payment system​

1. Client (Cardholder):
   • The person who initiates the payment (eg the buyer).
   • Uses a card or e-wallet to pay.
2. Seller (Merchant):
   • The recipient of the payment (for example, a store or service).
   • Accepts payments via terminals, online platforms or other methods.
3. Issuer Bank:
   • The bank that issued the client's card.
   • Responsible for checking client balances and approving transactions.
4. Acquirer Bank:
   • The bank servicing the seller.
   • Processes payments from customers and transfers money to the merchant's account.
5. Payment Network:
   • A provider that provides communication between banks (e.g. Visa, Mastercard, PayPal).
   • Guarantees security and reliability of transactions.
6. Processing center:
   • A specialized organization that processes payments and interacts with banks.

2. Stages of the payment system operation​

Step 1: Initiate payment​

• The client selects a payment method (for example, a bank card, an electronic wallet).
• Card or account data is transferred to the merchant via a POS terminal, website or mobile application.

Stage 2: Authorization​

1. Data verification:
   • The merchant sends transaction details (e.g. card number, amount) to the acquiring bank.
   • The acquiring bank forwards the request to the payment network (for example, Visa).
2. Confirmation by the issuing bank:
   • The payment network sends a request to the issuing bank.
   • The issuing bank checks:
     • Is the balance on the card sufficient?
     • Does the CVV/CVC match the Billing Address?
     • Is there any suspicion of fraud?
3. Authorization result:
   • If all checks are successful, the issuing bank approves the transaction.
   • If the check fails, the transaction is rejected.

Step 3: Processing the payment​

• After authorization, the amount is “frozen” in the client’s account.
• Transaction data is passed back through the payment network and the acquiring bank to the merchant.

Stage 4: Clearing and Settlement​

1. Clearing:
   • The payment system calculates how much money needs to be transferred from the issuing bank to the acquiring bank.
   • This happens through interbank settlements.
2. Transfer funds:
   • The acquiring bank transfers the money to the merchant's account (usually with a delay of several days).

Step 5: Confirm the transaction​

• The client receives a notification about successful payment.
• The seller sees the funds being credited to his account.

3. Types of payment systems​

a. Bank cards​

• Visa, Mastercard, American Express, UnionPay:
  • The most popular payment systems for physical and online payments.
  • They use the infrastructure of banks and processing centers.

b. Electronic wallets​

• PayPal, Skrill, WebMoney:
  • Allows you to store funds and make payments without using a bank card.
  • Often used for international transfers.

c. Mobile payments​

• Apple Pay, Google Pay, Samsung Pay:
  • Use NFC technology for contactless payments.
  • The card data is stored in the device's secure storage.

d. Cryptocurrencies​

• Bitcoin, Ethereum, USDT:
  • Decentralized systems where transactions take place through blockchain.
  • Does not require the participation of banks or payment networks.

e. Fast transfer systems​

• Western Union, MoneyGram:
  • Used to transfer cash between countries.
  • The commission may be higher than in other systems.

4. Security of payment systems​

a. Data encryption​

• All card data is encrypted when transmitted over the Internet (for example, using TLS/SSL).
• This prevents data from being intercepted by intruders.

b. 3D Secure​

• An additional level of security that requires transaction confirmation via SMS or app.

c. Tokenization​

• Instead of real card data, unique tokens are used that have no value for attackers.

d. Anti-fraud systems​

• Payment systems use algorithms to analyze transactions and identify suspicious activity.

5. Example of the payment system operation​

Scenario: Payment in an online store​

1. The customer selects a product and enters card details on the store's website.
2. The data is sent through the payment gateway to the acquiring bank.
3. The acquiring bank forwards the request to the payment network (for example, Visa).
4. The payment network sends a request to the issuing bank.
5. The issuing bank checks the balance and legitimacy of the transaction.
6. If everything is in order, the issuing bank approves the transaction.
7. The payment system transfers money from the issuing bank to the acquiring bank.
8. The seller receives a notification of successful payment.

6. Advantages of payment systems​

1. Convenience:
   • The ability to pay for goods and services from anywhere in the world.
2. Safety:
   • Protect your card data and prevent fraud.
3. Speed:
   • Most transactions are processed within a few seconds.
4. Globality:
   • Support for international payments and currency conversion.
5. Automation:
   • Minimize manual intervention in the payment processing process.

7. Conclusion​

Payment systems provide convenience, security, and efficiency in financial transactions. They operate as a complex ecosystem that includes banks, processing centers, and payment networks. Understanding how they work helps users navigate the financial world and protect their data.

If you have additional questions about how payment systems work or examples of their use, ask them!

 

[Man]

How payment systems work (Visa, Mastercard, MIR, UnionPay, etc.)​

Payment systems provide instant money transfers between banks, stores and clients. Their work includes authorization, clearing and settlements - let's look at all the stages.

1. Participants of the payment system​

Participant	Role
Cardholder	Card owner (individual or legal entity).
Issuing bank	Issues a card (eg Chase).
Bank-acquirer	Serves the terminal/site where the payment is made (e.g. Bank of America).
Payment system	Provides communication between banks (Visa, Mastercard, MIR).
Merchant	A store or service that accepts payment.

2. How does the payment work?​

2.1. Authorization (payment verification)​

1. The client inserts the card into the terminal or enters data online.
2. The terminal/sitesends a request to the acquiring bank:
   • Card number, amount, CVV, 3D Secure data (if any).
3. The acquiring bank forwards the request to the payment system (Visa/Mastercard).
4. The payment system redirects the request to the issuing bank .
5. The issuing bank checks:
   • Is there enough money?
   • Is the card blocked?
   • Does the CVV and 3D Secure Code match?
6. Solution:
   • Approved → money is reserved, the client receives a check.
   • Rejected → error ("Insufficient funds", "Card blocked").

2.2. Clearing (data exchange between banks)​

• At the end of the day, banks exchange information through the payment system:
  • Who owes whom.
  • How much and for what operations.
• Example:
  • Chase (the issuer) owes Bank of America (the acquirer) $50 for customer purchases.

2.3. Settlements (transfer of money between banks)​

• Through the central bank or interbank systems (eg SWIFT).
• The money is debited from the issuing bank account and credited to the acquirer.
• Usually takes 1-3 business days (longer for international payments).

3. Features of different payment systems​

System	Where is it popular?	Peculiarities
Visa	The whole world	Support for Apple/Google Pay, cashback programs.
Mastercard	Europe, USA	The best rates for international payments.
MIR	Russia	National system, operates without SWIFT.
UnionPay	China, Asia	Dominant in China, weak fraud protection.

4. How are payments protected?​

4.1. Security Technologies​

• EMV chip → protection against card cloning.
• 3D Secure → confirmation via SMS/app.
• Tokenization → replacing the card number with a one-time token (Apple Pay).
• Fraud monitoring → banks block suspicious payments.

4.2. Where are the weak points?​

• Phishing → data theft through fake websites.
• Skimming → copying the magnetic stripe on an ATM.
• Database leaks → if the merchant has poorly protected the details.

5. How much does it cost to process a payment?​

• For the store: 1–5% of the amount + fixed fee.
  • Example: Payment $10 → commission $0.3 (2% + $0.1).
• For the client: usually free, but there are exceptions:
  • Currency conversion (up to 5%).
  • Cash withdrawal from another bank (commission +%).

Conclusion​

1. Payment systems are "bridges" between banks.
2. The payment goes through 3 stages: authorization → clearing → settlements.
3. Security depends on technology (chips, 3D Secure) and user vigilance.