EFT/POS Networks

EFT/POS networks process, route, clear, and settle ATM and online POS debit card transactions by linking financial institution card issuers and merchant acquirers, consumers, merchants, and third-party service providers through telecommunication gateways.  The primary functions of the networks include routing transactions through central switching gateways, acting as clearing houses to settle network member on-us transactions, and forwarding "foreign" nonmember transactions for processing.  Both credit card and signature-based debit card transactions are processed in batch mode at the POS, and settlement is delayed until the batches are processed at the end of the day.  PIN-based debit card transactions typically settle at the end of the day using the ACH, although they are authorized in real time at the POS.

Most financial institution and nonbank ATM networks are connected to regional and national EFT/POS networks.  Most regional EFT/POS networks are joint ventures owned and controlled by competing financial institutions, some function as cooperatives, and some are owned and operated by a single firm as a profit-making enterprise.

Visa and MasterCard own and operate the two national EFT/POS networks: (1) Visa's Plus and MasterCard's Cirrus ATM networks, and (2) Visa's Interlink and MasterCard's Maestro POS networks.  The national networks serve as a bridge between regional networks, allowing them to route transaction information among them.

Membership in regional and national EFT/POS networks facilitates universal access to financial institution card-based electronic services and provides participant financial institutions with an interchange system offering authorization, clearing, and settlement services.    Acquirers collect interchange fees from network members (issuers) to cover operating costs.  With ATM transactions, the issuer pays fees to the acquirer, in contrast to credit and debit card networks in which the acquirer pays fees to the issuer.

Many financial institutions often rely on third-party service providers to conduct ATM and debit card payment processing.  Third-party service providers provide a range of retail payment-related services, including card issuing, merchant, account maintenance and authorization, transaction routing and gateway, off-line debit processing, and clearing and settlement services.  Although merchant acquiring financial institutions may use third-party service providers to perform many acquiring activities, the acquiring financial institution remains responsible for all third-party service-provider merchant activities.

Independent sales organizations (ISOs) provide third-party services to install and operate ATM and POS terminals for financial institutions and merchants.  Representing merchants and community financial institutions, an ISO typically contracts with third-party service providers for a variety of services including support of ATM and POS terminals, transaction processing, and cash restocking.  Some EFT/POS networks require an ISO to be sponsored by a financial institution member of the network.


Figure 6 - PIN-Based Clearing

Legend: Solid lines represent the flow of information and dashed lines represent the flow of funds.

Figure 6: PIN-based Debit Clearing and Settlement

Figure 6 describes a generic, online, PIN-based, debit card transaction.  The consumer enters a PIN to authorize the transaction (Step 1).  The merchant's financial institution requests authorization from the consumer's financial institution through the EFT/POS network (Step 2 and Step 3).  The consumer's financial institution, or in some cases the regional network, verifies availability of funds and debits the consumer's account (step 4).  The EFT/POS network contacts the merchant and authorizes the purchase (Step 5).

Typically, the acquiring financial institution does not credit the merchants' account with the entire amount of the transaction (similar to credit card clearing).  Rather, the merchant receives the transaction amount, net of applicable fees and other expenses assessed by the acquiring financial institution and other intermediaries to the transaction (Step 6).  For settlement, at the end of the business day, the regional EFT/POS networks determine the net debit and credit positions of the participating financial institutions and settle their positions using the ACH (Step 7).


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