News
How does transaction processing work?
Processors connect to the vast web of communication lines created by the networks.
November 6, 2000
Transactionsfrom ATMs in the United States go first to their own processor (the Acquirer). From that point, the connections branch out to different networks, issuing financial institutions, and sometimes other processors.
Each processor's data configuration is slightly different from the other. The route the transaction takes can vary considerably.
In the end all transactions must make it to the card-issuing financial institution and back again. For this reason, ATM cardholders can use their cards almost anywhere in the United States.
We can thank the transaction processors for this remarkable state of affairs, because, one way or another, they have chosen virtually all of the networks to be their partners.
At the top of the "pyramid" are national networks Plus (Visa) and Cirrus (MasterCard), in addition to Discover and American Express. At the next level there are networks such as NYCE, Jeanie, Star (East and West), Mac, Quest, Pulse and others.
There are other, more specialized, networks that use the magnetic stripe card. One example is the Armed Forces Financial Network (AFFN). This extensive network serves all members of the U.S. military. President of Western Reserve Processors Mike Stevenson says there are approximately 200 different card issuers that will only be accepted on terminals on which the AFFN works.
In addition, there is the U.S. government Electronic Benefits Transfer (EBT) network that delivers food stamps and cash benefits, like Temporary Assistance to Needy Families (TANF). As states consider additional programs, such as Social Security and Unemployment Compensation, which could be delivered with the same card, the EBT is rapidly changing to the Electronic Services Delivery (ESD) system.
Where does the processor fit in here?
Membership in the networks
Even with all these networks available, the transaction simply won't go through unless the ATM can eventually make a connection to the network where the cardholder's card-issuing bank is a member. This connection is engineered by the Acquirer and the number of network memberships he has.
For the Acquirer, joining the right number of networks is a critical call. Membership fees can range up to $125,000 a year. But many processors look at belonging to as many networks as possible as a "have-to" kind of thing.
"As a processor, I believe I'm better off to spend the extra money and get all my cards accepted everywhere. So if somebody, for example, with an EBT card issued by a New York network is traveling to California, he can access one of our terminals there and get his benefits, his food stamps or whatever," said Stevenson.
"So, we subscribe to every major regional network that's out there. We have Mac, Star, Plus, Cirrus. I can name 30 of them we subscribe to, in order to get our approval rating up. Approval rates are where the real money is made in this business. It raises the transaction volume," he said.
Simply put, the more transactions that are approved, the more money everyone involved makes.
The processor isn't the only one who has to belong to the right networks for the deal to go through. The processor's client ISOs must belong as well. They also pay network fees to give their customers -- the merchants and/or ATM owners -- access to the networks.
The president and CEO of Core Data Resources, Campbell Burgess explained. "If the ATM has a route to the customer's account, the cash is going to dispense. Otherwise, the cash is not going to dispense. Today, by and large, there's going to be a route to that account."
As a customer, how can we tell which networks will approve our transactions? "If you look at the back of your card," said Stevenson, "there are a bunch of little network logos -- we call them bugs. Most of the cards will have Cirrus and Plus, some of them will have Honor, Star, Mac, one of the regionals. Some of them will have four or five different ones."
These little bugs are the cardholder's ticket to ATM cash.
