Datasheet

10 Part I  Overview of Commerce

TRANSIT SYMBOL

Routing #

(9 digits) Account # Check #

ON US SYMBOL

Originator Receiver

ODFI RDFIClearing House

Figure 1-2: ACH process

Card Processing

ACH deals with the movement of money from one bank account to another.

The ACH model, although speciﬁc to the United States, more or less has a

similar foundation to most banking systems in other countries. The quintes-

sential characteristic of an ACH transaction is that the money should exist in

the creditor’s account for the debit to take place. If no money exists at the time

of transaction-commit, it fails. There are, however, cases where the bank charges

a fee and agrees to commit the debit even though there are not enough funds to

successfully commit the transaction; such cases are exceptional, usually incur

an over-draft charge, and are not considered a usual operational model for bank

accounts. The next and more recent model is the Credit Card system, also known

as the Card Processing model, which as we discussed earlier, operates based on

a borrow-ﬁrst-pay-later business model. The card processing has two modes of

operation: “four corner” and “closed loop.” The four-corner model is used by

Bankcards and Electronic Funds Transfer (EFT) networks, whereas the closed-

loop model is used by private-label credit cards and stored-value cards.

The four-corner model has the following actors: Merchant, Acquirer, Issuer,

and Cardholder. In the four-corner model, member banks act as issuers and

provide credit cards to consumers. Acquirers are also member banks but act

in a different capacity: They process transactions for merchants. The schemes

(Visa, MasterCard, Star, and so on) set transaction rules, provide the process-

ing switch (that is, the infrastructure that reroutes the ﬁnancial transactions

to the processing facility and card issuer), manage brand promotion, and most

importantly, assist in performing risk management. The four-corner model

distributes different roles to different actors.

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