Payment Services

Payment Services


The payments industry has evolved over the past few decades to now offer various ways for consumers to make payments and transfer money to different accounts. There is still the old-fashioned method of paying cash for purchases and services, and there are also credit cards, debit cards, and gift cards, which can be used in brick-and-mortar stores and for online transactions. Most merchants now have technology and secure financial software programs to accept and process credit card payments and issue refunds when required. In such transactions, these are the players and steps involved, as described by Fiserv (formerly First Data), a payments and financial technology company: consumer makes purchase or payment, merchant processor routes the payment or returns the payment approvals to the consumer's issuing bank, the merchant's financial institution receive the credit or debit card payments through the merchant processor before depositing the funds for the merchant. The merchant captures the customers' data through a point of sale system, credit card terminal, payment gateway, or virtual terminal. The customers' issuing bank is also involved in the transaction; this is the financial institution that provides organizations and consumers with debit and credit cards, and it also transfers funds to pay merchants. The major credit card networks (American Express, Mastercard, Visa, and Discover) are the connection between the merchant's bank and the consumer's card-issuing bank.

As Fiserv describes it, there are open loop and closed-loop payment systems. With the open loop system, the credit or debit card can be used to pay for purchases at any business or merchant, for example, all cards with the Mastercard logo on them are on the open loop system. A closed loop system means that the credit, debit, or gift card is specific to that store or brands within the corporate umbrella of that store. There are store-specific cards such as Macy's and Target. The Gap is a brand-specific store, which can include its other brands: Athleta, Banana Republic, and OldNavy. And American Express and Discover are private-issue cards; they are accepted in many places but they process their own payments rather than being processed by card networks. The advantages for closed loop payment systems are that merchants have lower transaction costs than with open loop systems, and they can also increase customer loyalty. For consumers, card holders with store-specific cards receive targeted sales and other benefits.

Money transfer services enable consumers and businesses to make digital remittances, which may be within and across the U.S., or across borders from people in different countries. The market research group Statista describes the major money service companies as "legacy providers," including banks, post offices, and specialized money transfer services such as Western Union and MoneyGram. "These services charge comparatively high fees, and the digital companies such as TransferWise, WorldRemit, and Remitly have won their share of the market by offering reduced transfer fees." They are able to offer lower costs because of their digital infrastructures.

There are also payment service companies that enable consumers and businesses to conduct transactions online. These include companies such as PayPal, Square, Venmo, Apple Pay, Google Pay, Cash App, among many others. People use these services to transfer and receive funds from friends and contacts. Consumers register their bank account, credit card, or debit card details with these services and then use the specific payment service app for their financial transactions. PayPal, which is among the most widely used and accepted payment service, allows users to choose which of their credit and debit cards or accounts to pay with. Venmo, as of 2019, is a U.S.-only payment service. It's owned by PayPal, but differs from PayPal in that it's designed for small fund transfers, with the focus on the P2P (peer-to-peer) market. Square is a credit card processing system for merchants to digitally accept credit card payments, through its mobile point-of-sale app, or through other methods, such as in-store at a traditional point-of-sale setup, or at an online store or a virtual terminal for payments by phone.