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Consumer Shopping Channels
- Consumer Shopping Channels
- Consumer Payment Methods
The Players: Who’s Involved in the Payment
Cash payments are simple. They are a physical direct transaction between a consumer and a merchant. When a consumer chooses a different method of payment – such as a credit, debit or gift card – the process gets complicated. To get paid, a merchant must have technology in place to accept the payment method, process the payment, and facilitate the transfer of funds.
As the individual putting payments into action by choosing to purchase a good and/or service, the consumer plays a critical role.
By providing goods and/or services and accepting multiple forms of payment, merchants initiate the process by entering the consumer’s payment information into a payment gateway system (commonly known as a POS terminal).
The Merchant Processor
The organization responsible for routing payment details through the card networks to the consumer’s issuing bank and returning payment approval to merchants.
The Issuing Bank
The financial institution that provides consumers and other organizations with credit and debit cards, and is responsible for transferring the funds to pay merchants.
The Acquiring Bank
The financial institution that holds the merchant's bank account and receives payments through the processor and deposits funds on the merchant’s behalf.
The Card Network
The four major credit card networks – Visa®, Mastercard®, Discover® and American Express® – serve as the connection between the merchant and the consumer's bank, or the issuing bank.
Today, many stores offer both open and closed loop cards.
A card that can be used to pay for purchases from any merchant or business. All cards that carry the Visa or Mastercard logo work on the open loop system. Regardless of the merchant or bank issuing the card, payments are processed through the network associated with the card.
Cards issued by merchants, like store-specific credit cards and gift cards, run on a closed loop system. This private system restricts the usage of the card, only allowing payments at businesses within that system. Merchants can benefit from lower transaction costs and increased customer loyalty, while cardholders can receive more targeted offers based on purchases and spending
Examples of Closed Loop Cards:
- Store-specific cards offered by big-box merchants like Target and Macy’s
- Brand-specific cards offered by brands under a single corporate umbrella, i.e., The Gap, which offer a card that can be used at all three of their brands: The Gap, Old Navy and Banana Republic
- Private-issue cards such as American Express and Discover. Although both are widely accepted, they process their own payments instead of paying the card networks
In October 2010, First Data launched “Payment Methods 101,” a first-of-its-kind educational resource for the payments industry. Our goal was to provide industry players with a basic overview of the credit and debit card markets as well as explore the trends and issues affecting the industry. Since then, that publication has been downloaded thousands of times and inspired numerous imitations. The incredible amount of change that’s occurred in the industry spurred our decision to create an updated edition.
Inside, you’ll find insightful information on the history of payments, as well as an in-depth look at how America pays today, the current trends in payments, and the critical issues affecting the industry. It also features an exhaustive glossary of key terms and concepts. Consider it a resource to aid you in developing new payment strategies that help ensure secure transactions, prevent fraud, meet customer expectations, and, most importantly, assist in maximizing your financial performance.
“Cash, check, debit or credit?”
For more than 50 years, these were the only four payment methods available to U.S. consumers. They just chose the best option based on how they were making the purchase – in person, over the phone, or through the mail – and their own personal preference. In 1991, the launch of the World Wide Web completely disrupted the way consumers shopped, creating a need for remote, online payment processing, or eCommerce.1 Since then, change has been rapid.
Today, consumers can choose from a range of shopping channels and a multitude of payment options to find and purchase the products and services they want and need.
1 “History of the Web,” World Wide Web Foundation