Understanding the basics: Card payments in the US

The speed at which the world is adopting digital payments is breathtaking, and the key driver is card payments. According to Nielsen, the number of cards in circulation worldwide in 2022 was 25.85 billion. It forecasts this number will grow to 28.44 billion by 2027, with the most significant growth coming from Asia, Latin America, and the Middle East. In 2021 alone, $7.38 trillion of purchase volume was made via card, and 581.22 billion card transactions were made in the US alone. Card-based payments enable easy, fast, and convenient means of payment. 

A card is primarily a physical piece of plastic with magnetic strips or a chip on the top. However, it could also be a virtual card with card numbers in an app or wallet that can be used for online or offline transactions.

The card payments ecosystem enables users to access their funds through cards, allowing them seamless transactions for purchasing goods and services. In the money transfer business, it enables users to send and receive payments to and from via and into cards. 

Common terms in card ecosystem

‍Merchant: Merchants are business that provides goods and services to the end users. They collect card payments from their customers in-person or online, for e.g., departmental stores and e-commerce sites. 

‍Acquirer: These are financial institutions that provide merchants with the 'tools' and 'facilities' to accept card-based payments. For e.g., Citibank, Chase, US Bank, Wells Fargo

‍Acquirer processor: They connect the Acquirer to card networks. An acquirer processor may be built into the Acquirer, or it may be a separate third-party service.

‍Issuer:  These are financial institutions that issue cards and bank accounts to end users. E.g., Citibank, Chase, US Bank, and Wells Fargo.

‍Issuer processor: They connect the Issuer to card networks. An issuer processor may be built into the Issuer or may be a separate third-party service.

‍Card network: They provide the 'rails' for card-based transactions. They pass messages back and forth between issuers and acquirers to make transactions happen. Visa, Mastercard, American Express, Discover are some of the most popular card networks. 

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How does CARD work?

1. A card is issued by an issuer to the user.
2. The user initiates a card transaction via any payment terminal, such as a card reader, card terminal, point of sale(POS), or payment gateways for online merchants. 
3. The payment terminal sends a message to the acquirer processor with transaction details. 
4. The acquirer processor identifies the card network, which in turn identifies the issuer bank. The card network connects to the issuer processor to inquire about the transaction details such as bank account verification, balance check, and other necessary checks. 
5. The issuer processor makes necessary checks and decides whether to approve the transaction. Once approved, it will send a message to the card network, which will relay this information from Issuer to the Acquirer. 
6. Once the acquirer processor receives the approval, the funds are held from the user's bank account, and payment is approved. The entire transaction only takes about a few seconds to complete

Although the payment is authorized, the actual settlement of funds or movement of funds from the cardholder bank does not occur at that very moment. Settlement takes place at the end of the day. Until then, the funds are held and cannot be used by the cardholder.

Main features of CARD

• Secure: CARD is one of the secure means of funds transfer where a user is authenticated on each transaction. If customers see any unknown transaction in their statement, they can easily file for a chargeback to get their funds back.
• Network fees: During the settlement of transactions, the card networks charge certain fees and send the amount to the merchant after deducting its fees. The card network will keep a certain amount as its network and interchange fees. These fees are not charged to the user.
• Instant processing: Unlike ACH, card transactions are processed in real-time. Hence customers can purchase in a few seconds. Although the settlement may take a day, the funds are held in the bank account in a few seconds.

Use of cards in Remittance

Apart from using cards for purchasing goods and services, cards can be used to fund money transfers or send remittances. Using cards to send remittances have several benefits:

Convenience: Cards are widely accepted and can be easily used for online transactions or at payment terminals. Card-based remittances are processed quickly, making it convenient for both senders and recipients. Card transactions usually offer faster transfer times compared to ACH transfers due to the fund settlement process within the card network.

Accessibility: Credit and debit cards are widely accessible, allowing individuals to send remittances from anywhere with an internet connection or access to card terminals. This accessibility enables faster and more efficient money transfers, especially for recipients who may not have easy access to traditional banking services. Push-to-card functionality allows the sender to instantly push payments to a receiver's debit card, allowing receivers quick access to funds coming in as remittance. 

Security: With features like PIN codes, EMV chip technology, and fraud detection systems, card-based remittances provide a higher level of protection against theft or loss. Many card issuers also offer fraud protection programs to safeguard customers against unauthorized transactions.

Traceability and documentation: Card transactions leave a digital trail, providing a transparent record of the remittance process. This traceability can be helpful for tracking transactions, verifying payments, and resolving any disputes or discrepancies that may arise during the remittance process. 

Rewards and benefits: Some card providers offer rewards programs or cashback benefits for transactions, including remittances. By using credit cards for remittances, individuals can earn rewards or cashback on their transfers, providing additional value or incentives for using cards as a remittance method.

Both debit and credit cards can be used to send money, although using a credit card can be the costlier option. A debit card or an ACH transfer will bring down the overall cost of the transactions.

Machnet provides payment technology for businesses to build their remittance and international payment products. Our technology enables end users to use ACH and debit cards, to send remittance payments. Our built-in compliance infrastructure and fraud prevention solution ensure that transactions take place securely. Contact our team to learn more.