Familiarize yourself with important functional concepts used in the payment ecosystem. In this article, you learn about:
What is payment?
A payment is a series of debit/credit entries that affect the asset and liability side of multiple ledgers. A typical payment consists of a payer (customer, buyer) and a payee (merchant), where the payer’s account is debited and payee’s account is credited. Payment, when initiated by the payer is called Push Payment; and Pull Payment, when initiated by the payee.
Issuer
A financial institution that facilitates communication and transaction between the issuer, acquirer, and any other party in between. Payment cards that issuer provides to payers are technologically powered by card networks. Example: Mastercard, Visa, RuPay.
Authentication and authorization
Authentication is the verification of the payer’s identity to process a payment. When a payer presents card details to the payee, the acquirer contacts the card network, who in turn, contacts the issuer. Issuer verifies the payer's identity and authenticates the payment.
Authorization is the approval that issuer grants for a successful payment. After authentication, the issuer verifies if the payer has sufficient balance to honor the payment. This authorizes the payment, and transmits a response to the card network, who in turn, contacts the acquirer with instructions on how to proceed with the payment.