I am currently writing my Bachelor thesis on electronic payment systems and I began without any previous knowledge, since I study computer science.

So I started to read "Payment System Technologies and Functions" by Masashi Nakajima and he describes payment systems as systems to discharge obligations between two parties. It is mainly a tool for transferring funds between two financial institutions.

He then classifies payment systems by various key factors, one being the volume of funds being transferred. It's in this book where I first read about Step2 (PAN-EUROPEAN ACH) for small value transaction, like in retail.

Now I am confused regarding the flow of credit card payments. My understanding is, when a customer pays with a credit card, the payment network (e.g. Visa) requests the amount from the issuing bank (whose responsibility is to check whether the customer has enough money). It then transfers the money to the bank of the merchant. So is Visa in this example a payment system and all the money is first transferred to Visa and Visa transfer the money further to the Merchant's bank?

Or does Visa tell the issuing bank (customer) to transfer a certain amount of money to a certain bank account (merchant) and it's the responsibility of the issuing bank to do the transfer?

If the first is true, I don't quite understand what Step2 is used for.

And another thing is, and I'm not quite sure how this fits into all of this: I have been running a small web shop for a few years now and I utilise Stripe for all my credit card payments. When I receive my payout, I receive the payment from Stripe and not from Visa or MasterCard. I found a help entry on Stripes support website but I don't know what they mean with "merchant account" (https://support.stripe.com/questions/are-you-a-merchant-account-or-a-gateway-or-something-else). Maybe someone can explain me how Stripe handles payments.

I really appreciate any response in advance. This topic is getting quite complicated really fast.



I just found an answer on quora from Wellington W. Sculley (https://www.quora.com/What-exactly-is-Visa-and-Mastercard-if-theyre-not-banks#__w2_SPJBoDf_answer). He states that Visa and similar card networks "[...] will use the local settlement system.". I think this is the answer I was looking for.

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    I am not a specialist, but I think it has to go through Visa. Remember that the merchant doesn't get the full amount; Visa sends him a reduced amount (a fee comes off it), and also a cumulated daily/weekly/monthly total only, depending on the contract details. – Aganju May 25 '17 at 10:20
  • Isn't the chief point of credit cards that there's credit involved? I.e. Visa gets paid at some future time. – MSalters May 25 '17 at 11:00
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    I'm voting to close this question as off-topic because this is about research. – Dheer May 25 '17 at 12:24
  • @DanielCarson: Of course not. When I said "Visa gets paid at some future time", I believed it was entirely obvious who pays later. – MSalters May 25 '17 at 14:39
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    I'm voting to close this question as off-topic because it is not about personal finance. – Chris W. Rea May 25 '17 at 16:23

Your chief problem seems to be that you're mixing Visa (credit cards) and Step2 (a European Automated Clearing House). Credit cards are primarily an American concept, but do work worldwide especially in travel&tourism industry. The Credit Card companies are financial institutions themselves and operate similar to international banks They're typically acting as intermediaries between the customer's bank and the retailer's bank, so this works even if those two banks have no existing agreements.

This is expensive, though. Step2 is a cheaper European system which eliminates the middle man. It allows the consumer's bank to directly pay the retailer's bank. VISA is not a member of Step2.

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    Okay this actually makes sense, since Visa has contracts with the acquiring and the issuing bank. But I'm still not sure if Visa really performs the transactions themselves. – Ka0o0 May 25 '17 at 19:50
  • @Ka0o0: Which parts of the transaction? Visa is definitely involved, and at the level they're working the processing of a transaction has multiple steps. They obviously can't deduct money directly from the consumer's bank account, since that is under strict control of that bank. – MSalters May 26 '17 at 8:17
  • I know. I mean that I just can't image Visa receiving all payments from the card issuing bank and then resending the money (minus their share) to the acquiring bank. – Ka0o0 May 26 '17 at 8:59
  • I just found a similar question on quora, which seems pretty legit. I updated my question. Thank you very much for your input! – Ka0o0 May 26 '17 at 9:10

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