The Anatomy of the Swipe: Making Money Move by Ahmed Siddiqui


Last month a medium article on payments ecosystem through a LinkedIn connection Ahmed Siddiqui caught my eye. It’s part of a series of articles on how debit and credit cards work end to end. I found the article very informative and the author an ex-marqetan. When I reached out over slack, he told me about the new book he just published The Anatomy of the Swipe: Making Money Move. I bought the kindle version right away and started reading.

I found Ahmed left Marqeta just a few months before I joined. He drew heavily upon his experience at Marqeta in this book. Anyone new into the FinTech or want to know how payment systems work in US, will find it a great read. He explained with great illustrations, easy to understand language and covers both the theoretical and practical parts about all the relevant parties/entities involved like cards, merchants, acquirers, acquirer processors, acquirers banks, payment networks, issuers, issuer processors, issuer banks, card types, payments rails etc. Many of the references in this book are people that I have worked with or still continue to work in a daily basis including our CEO Jason Gardner.

Ahmed starts the book in a storytelling mode of how he unexpectedly ends up joining Oakland based startup Marqeta as a product manager at 2014 pursued by his old school mate Dave Matter despite not knowing much about the payments ecosystem and how it works. There he started learning from his colleagues and moved to Dubai as Marqeta signed a deal with a large mall operator. To explain the reader easily he brought an analogy of a donut shop and a coffee shop at San Francisco throughout the book. Here are the some of things you will know as you read through it.

  • BIN – bank identification number
  • KYC – know your customer
  • Payment authorization – transaction that happens once a card is swiped, dipped or tapped in a payment terminal or via web site or mobile
  • Single-message vs Dual-message transactions – dual message transactions put a hold on the transaction amount instead of deducting the money right away from the card holder
  • ISO 8583 message – a compact layer 3 protocol based message that travels fast through payment terminal, acquirer processor, payment network and issuer processor
  • Clearing and Settlement
  • Acquirer fee vs Interchange fee vs Network Assessment fee
  • Money movement from bank to bank via Fedwire
  • Chargeback – when cardholders return a product or denies that a particular transaction was made by them
  • Dispute – when a merchant is not ready to accept the chargeback as valid and shows evidence of the original transaction via receipts
  • Zero liability policy
  • 3D Secure (3DS) – additional layer of security to the cardholders for fraudulent charges during payments via websites
  • Payment Networks – how open payment networks like VISA and MasterCard, and closed payment networks like American Express and Discover are different
  • Payment Facilitator (PayFac) – Square or Toast
  • Merchant Acquirer – the company that enables merchants to accept the card transactions via payment terminals and forward those acquired transactions to payment networks for further processing
  • Card network rails – credit networks, signature purchase, pin debit networks, ATM networks
  • Traditional Banks vs Neo-Banks
  • Founder stories – Zach Perret of Plaid, Jason Gardner of Marqeta, Rick Song of Persona, Rodney Robinson of Tabapay
  • Payment Service Provider (PSP) – aggregator of payment methods for debit cards, mobile wallets, and financial schemes
  • Card Program
  • Program Manager – company that manages day-to-day operations of the card program including settlement, fraud management, and maintaining relationship with the issuing bank, card manufacturer, payment network and card holder
  • Card Issuer – company of bank that issues a debit or credit card
  • Issuer Processor – company that approves or declines the transactions for the cards that were issued by them or the issuing bank
  • Co-Brand Partner – businesses can create their own debit or credit cards as Co-Brand Partner using APIs provided by Issuer Processor
  • Just-in-Time (JIT) Funding
  • Difference between debit and credit cards
  • Card types – debit, credit and prepaid cards
  • Consume debit cards have lower interchange fee, but Commercial debit cards have higher interchange fee
  • Track 3 Data – itemized breakdown in receipts
  • Private level cards vs Co-Brand cards
  • Moving money between accounts or banks without the payment networks – ACH (Automated Clearing House), Direct Deposit, Peer-to-Peer, Zelle, Wire Transfers, Real-Time Payments (RTP)
  • Push-to-Card technology
  • Virtual Cards
  • Real-time spend controls

One thing I found missing in this book is the coverage of tokenization of physical or virtual cards via applepay, androidpay and samsungpay, as well as how in-app provisioning works for tokenization. Token-based transactions were very low volume in the past but has been increasing at a faster rate than regular card based transactions since last year. It has become pretty evident now in this time of COVID-19 when card holders are preferring contactless payment options across USA. In Europe, the adoption of token based transactions were already very high and shows signs of continued increase.

 

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