In the mobile app development industry, the back-end is always complicated. But when it comes to the back-end of the FinTech app or e-wallet app, it becomes more complicated than solving a Rubik’s Cube while skydiving!
Millions of people like you use the e-wallet like Google Pay to pay for any good by (not even) touching their mobile phones to the Point of Sale System of the merchant. Every time, they find it so straightforward and easy. Right? But the reality is surprising and magical. The back-end process that makes you believe that paying through e-wallet apps is mind-blowing.
In this blog, I will explain the whole back-end environment in which e-wallet works. To make this blog very understandable, we will study the Google Pay’s working method. However, to know how an e-wallet like Google Pay processes your payment request like a piece of cake, let’s first understand how a debit card or credit card works. Because the payment infrastructure of such e-wallets highly depends on the working methods of debit cards or credit cards.
Pre-requirement: How debit or credit card works?
You enter a grocery store, buy a few groceries, swipe your card to pay and exit the grocery store with a grin on your face. But wait! Time traveling to when you swipe your card at the terminal or at the point of sale system, many companies including banks punch a clock to process your payment request.
So, who are these hidden gems who work behind the scene to make your payment experience smoother and hassle-free? Following is the list showing four major players playing one of the toughest games for you.
- The Merchant
The merchant owns the point of sale system and from whom you buy the goods.
- The card issuer
The card issuer is either a financial institution or a bank who issues the debit or credit card to you. It is their call to take care of the line of credit.
- The merchant acquirer
The merchant acquirer takes care of the merchant’s bank account. It enables the merchant to accept different cards and deliver every transaction request to the payment processor.
- Payment processor
Payment processor shares the card details it gets from the merchant acquirer with card issuers for fund transferring from buyer’s account to merchant account.
Here it is worth to mention that Visa and MasterCard are counted as the card network. But due to the fact that these card networks are the umbrella organizations, they are not considered as part of the payment system or four-party system.
So, now when you are familiar with companies, banks, and software involved in the payment process, let’s understand the big picture: How these 4 parties process the payment as soon as you swipe the card.
What happens when you swipe the card?
The moment you swipe the card, a very complex process is triggered. This process can be divided into two different phases, one is the authorization phase and another is the transaction phase.
In the authorization phase, the card issuer authorizes the card. But it isn’t as easy as it sounds. To authorize the card, card issuer first needs access to the buyer’s card details.
The terminal or point of sale system which has the merchant’s identification number, sends the card information along with transaction amount to the payment processor. This payment processor reads the information and shares it with the card issuer.
The card issuer then takes a series of algorithms in the account to authorize the card. These algorithms are dedicatedly written to check the fraud. It also verifies whether the buyer owns a sufficient amount in his bank account to pay to that merchant or not. Based on the result, it either grants or denies the transaction and whatever the response is, it delivers it to a merchant acquirer.
Once the card has been authorized by the card issuer, the transaction phase takes place. The card and amount details which merchant acquirer receives during the authorization phase, are now delivered to the merchant accounting system (MAS) which supports every merchant’s account.
Different card networks like VISA, MasterCard receive the transaction details of the transactions that are related to it. For example, if a buyer swipes the VISA card, that transaction is handled via VISA card network only.
The MSA then deduces the merchant discount fee and sends all transaction details in a form of instruction to a computer-based program named automated clearinghouse (ACH) network which processes an electronic transaction between card network, merchant bank account, and buyer bank account.
So, after satisfying the pre-requirement, let’s move ahead and learn how Google Pay and other e-wallets are working on the same principle which we have just discussed.
How Google Pay and other e-wallets work?
Google Pay is the world’s leading e-wallet, letting users pay by just tapping and touching. However, Google Pay isn’t the payment platform which introduced the contact less payment via NFC technology. Other companies like MasterCard and Visa had already been working hard to redefine the payment methods.
Back in 2011, when Google Pay was launched, only the Nexus phone users could install and use it. Moreover, Google had only tied up with City Bank and MasterCard. Because of Google’s lazy attitude, the number of users they acquired was very low. But soon, Google added a groundbreaking feature in the backend of the Google Pay which has changed the fate of the e-wallet industry.
Google has integrated a virtual card with the help of Bancorp. The virtual card reads the data from the user’s original card and shares its own data whenever needed rather than sharing the data of the user’s original card. Google is deriving the benefits of virtual cards in two ways.
- Because of the virtual card, Google didn’t need to drag themselves into a very long process to be a partner with other card networks and banks.
- Since the data of original cards remain safe in the app and only virtual card data is shared with the merchant, the transaction becomes very secure.
This is the only difference between the payment you make by swiping the card and payment you make by tapping your phone. As Google describes, when you place your mobile near to NFC reader, Google Pay transfers virtual card’s details to the merchant. And then the rest of the process is the same as we have discussed.
However, following this very interesting idea costs a lot to Google as they require to spend huge to store that real data of real cards on their servers, reals!
Author Bio: Vishal Virani is a Founder and CEO of Coruscate Solutions, a leading FinTech app development company. He enjoys writing about the vital role of mobile apps for different industries, custom web development, and the latest technology trends.