[eximius]

All this talk of monopoly in this sector of finance makes me wonder how you'd start a service in this space.

And it made me realize I have no idea how it works.

I swipe (or insert w/ chip) at a POS... which then beamz the transaction to VISA? So do you need to get a partnership with all of the POS vendors? Is that open or closed?

Of course, that presupposes that someone has your card. VISA doesn't make cards, they just get banks to issue cards using their network (why don't banks do this on their own?). So now I also need a partnership with at least one large bank to have a decent enough exposure to get those partnerships with those POS vendors?

The challenges sound largely political, in making those initial connections with the right company. Which doesn't make them easy, but it elevates a deceptively simple technical problem to a hard one, I think.

[farazbabar]

There is a lot more to it than that, there is merchant acquiring (merchant relationship with a payment services provider that gives merchants the credentials and equipment to accept payments), there are sometimes aggregators that transactions then funnel into. Next the transactions hit a network which acts as the router between acquirers and issuers (more on this later). The network can also act as a default stand in when the issuing bank is not reachable. From here the transaction goes into the issuing bank which runs a host of fraud and risk rules to answer the questions: 1. Should I authorize this? <- this is bank's prerogative and mostly deals with financial risk and 2. Can I authorize this? <- this is regulatory in nature and can be very binary and very binding. Its the the second question that also comes with binding regulations in some jurisdictions that prevent all parties along this chain from disclosing the reasons for declining, withholding funds or delay processing to affected parties. Even more interestingly, PayPal operates at most of these tiers almost entirely independently (PayPal API as the acquirer, PayPal as the aggregator, PayPal as the network of network AND of-course PayPal as the issuer with PayPal credit. Obviously not all transactions go through all tiers in case PayPal (a credit card transaction goes to card network and card issuer in the back for example) but Pay upon invoice, Bank transfers and PayPal credit (bill me later) are all examples of PayPal extending credit to buyer. Payments are quite fascinating, you are correct that a lot of issues are political but don't underestimate the complexity of the ecosystem, especially in global context. And I have not even gotten into bad faith actors and the war between good and bad guys yet.

[megous]

Is there some good resource on how this all works in reality, or is it just something you learn by working in the sector?

[farazbabar]

I write about it on my company blog for internal developers, perhaps I can get our legal folks to go over it and I can publish some of it. There is a lot of tribal knowledge for sure but on my journey from issuers to merchants to networks, I keep finding consistent themes. Perhaps it is time to put this all down on paper.

[greenyoda]

You can start here and follow some links:

https://en.wikipedia.org/wiki/Payment_gateway#Typical_transa...