The Business Guide to Understanding the Payments World: Who Handles the Money and What Happens Behind the Scenes
When a customer taps their phone to a terminal, pays via a link, or approves a payment request, the action looks simple and takes seconds. Behind that action operate several entities and systems, and it can be difficult to understand who is responsible for each step.
A business owner does not need to become a payment infrastructure expert. However, it is important to understand who handles the money, who collects the fee, when a transaction is approved, when it becomes final, and when the money reaches the business account.
The following guide organizes the key terms in the payments world.
What Happens When a Customer Pays by Card?
A standard card transaction usually involves four main parties:
The customer is the cardholder who makes the payment.
The issuer is the entity that issued the card to the customer — usually a bank or a credit card company. The issuer checks whether the transaction can be approved based on the card's status, credit limit, and risk management systems.
The acquirer is the entity that provides clearing services to the business. It receives the transactions performed by the business and transfers the funds according to the agreement and settlement dates.
The terminal provider or payment gateway supplies the technological infrastructure through which the transaction is transmitted. This can be a checkout register in a store, a physical terminal, a payment page on a website, or a system for sending payment links.
Sometimes the acquirer and the terminal provider are the same entity, but not always. Therefore a business may receive one invoice for clearing and another invoice for the terminal, the system, or the payment page.
What Is Shva?
Shva, Automated Bank Services, operates the central card-payment system in Israel for debit cards.
When a card transaction is performed, messages must be transmitted between the acquirer and the card issuer. The system transfers the approval request and the transaction response. Shva is the infrastructure that enables the parties involved in the debit-card array to communicate with each other.
Shva is not the customer's credit company and is not necessarily the entity that clears the business. It operates behind the scenes and connects the relevant parties. Shva also operates infrastructure related to the activity of automated teller machines.
What Is Masav?
Masav, Bank Clearing Center, operates infrastructures for transferring debits and credits between bank accounts.
Through Masav, operations such as salary transfers, payments to suppliers, collection via account-charge authorization, crediting of multiple payees, and instant payments are performed.
The basic difference is that Shva is identified mainly with the debit-card world, while Masav is identified mainly with transfers, debits, and credits between bank accounts.
What Is the Difference Between Transaction Approval, Clearing, and Settlement?
These are three different stages that are sometimes mistakenly perceived as a single action.
Transaction approval is received when the card issuer approves the transaction. The approval does not mean the money is already in the business account.
Clearing is the process of transmitting the transaction and handling it among the participating parties.
Settlement is the stage at which the money is actually transferred to the business, minus fees and according to the agreement with the acquirer.
Therefore, even when a transaction is approved within seconds, the business may receive the money only after several days or at the monthly settlement date agreed with the acquirer.
What Is an Instant Payment?
An instant payment is a transfer from one bank account to another in which the money is received by the payee within seconds and becomes final and available.
Unlike a card transaction, the payment is not based on the customer's card limit. The money is transferred between bank accounts via an instant-payment infrastructure.
For a business, an instant payment can shorten the time to receive money, increase certainty, and help match the receipt to the invoice. It may be particularly suitable for high-value transactions, business-to-business payments, and cases where quick confirmation that the money was received is required.
What Is a Payment Request?
A payment request, or Request to Pay (R2P), allows a business to send a customer a structured digital demand for payment.
The request can include the business name, the amount, the purpose of the payment, and additional details. The customer receives the request and decides whether to approve or reject it. If approved, the payment is executed according to the route and service used.
It is important to understand that a payment request is not an automatic charge. The mere sending of the request does not transfer money and does not allow the business to charge the account without the customer's approval.
The advantage for the business is that there is no need to send the customer bank account details and ask them to type them in manually. This reduces errors, eases receipt identification, and may shorten the collection process.
What Is Payment Initiation?
Payment initiation is a service that allows the customer to start a payment from their bank account through a licensed provider.
Instead of entering the banking app, typing the payee details, amount, and note, the customer receives a payment process in which the details are already filled in. They authenticate and approve the action according to the bank's or provider's security mechanism.
The payment-initiation provider is not supposed to execute the payment without the customer's consent and does not receive free access to their account.
The key difference is that a payment request is the business's demand to the customer to pay, while payment initiation is the service that helps the customer perform the transfer from their account.
What Is the Connection to Open Banking?
Open banking allows the customer to give a licensed entity defined access to financial information or to use payment-initiation services.
The access is granted with the customer's consent and for a defined purpose. It can be used to display information from multiple accounts, analyze cash flow, match receipts, obtain credit, or make a payment from the bank account.
For businesses, open banking can connect the collection system, the accounting system, and the bank accounts. The connection may reduce manual work and improve cash-flow control.
Is a Digital Wallet a New Payment Method?
Not always. Sometimes the digital wallet is just another way to use an existing payment method.
For example, when a customer pays with Apple Pay or Google Pay, the transaction is usually based on a card stored in the wallet securely. From the business's perspective, it is still a card transaction going through the clearing system.
Other payment apps may be based on a balance stored in the app, on a card, on a transfer from a bank account, or on a combination. Therefore it is important to check what is behind the wallet and not settle for the marketing name of the service.
To learn more about the differences between wallets, apps, and prepaid cards, you can also read the guide to payment apps and cards for kids in Israel.
A Payment Link and QR Are Not Necessarily a Payment Method
A payment link is an address that leads the customer to a page where a transaction can be completed. A QR code is a convenient way to open a link, an app, or a payment request by scanning the phone.
Behind the link or code can be a card transaction, a payment request, a transfer from an account, or a digital wallet. Therefore, a link and a QR are usually access channels to payment, not the payment method itself.
What Is Tokenization?
Tokenization is a process in which card details are replaced with a digital identifier. The goal is to reduce the exposure of the card number and lower the risk in the event of a data breach.
The method is used, among other things, in digital wallets and in card storage for recurring charges. From the business's perspective, it allows managing payments more securely without keeping the full card number in its systems.
What Is a Transaction Dispute (Chargeback)?
A transaction dispute occurs when a customer claims they did not perform the transaction or did not approve it. Depending on the circumstances and the law, the amount may be returned to the customer and deducted from the business.
An approved transaction is not necessarily immune to a dispute. Therefore businesses should check the customer-verification method, record retention, cancellation terms, and the security mechanisms of the payment provider.
What Is a Payment Service Provider?
A payment service provider is an entity that may provide services such as clearing payment actions, issuing payment methods, managing a payment account, or transferring funds.
It is important to check which service the provider is licensed to offer, who holds the money, how customer funds are safeguarded, who performs the clearing, and what happens in the event of a fault, a refund, or cessation of activity.
The use of terms like "fintech," "wallet," or "payments platform" does not by itself explain the structure of the service or its regulatory status.
What Is Important to Ask Before Choosing a Solution?
Before contracting with a payments provider, the business should get clear answers to several questions:
- Who is the acquirer and who is the technology provider?
- Who holds the money at each stage?
- When does the business receive the settlement?
- Can the payment be canceled or disputed?
- How are refunds to customers processed?
- Is there automatic matching to invoices?
- Who handles faults and inquiries?
- Does the provider hold the required license for its activity?
- What is the total cost of the service?
Price matters, but it is only part of the picture. Availability of funds, the rate of failed transactions, the quality of accounting matching, the level of service, and the ability to add new payment methods can be no less significant.
To expand on examining costs and choosing a payment method, you can read the article Clearing Costs and Existing Payment Methods.
In Conclusion
The payments world consists of several layers: the payment method the customer uses, the channel through which they perform the transaction, the provider that connects the business, the entity that clears the transaction, and the infrastructure that transfers the information or the money.
Understanding the role of each party allows a business to negotiate better, identify duplicate costs, improve the collection process, and choose a solution that fits its customers and systems.
Our firm accompanies businesses in examining the existing payments setup, comparing providers, choosing payment methods, reducing costs, and implementing new solutions.