credit card industry 6: Networks
Part 6 - Networks
ACCESS NETWORKS
For most credit card applications, the cost of the access network is the single biggest factor in overall costs, often accounting for over half of the total. For that reason, there are many different solutions, depending on the provider, the application, and geographical constraints.
The simplest form of access network uses 800 service, in one of its many forms. Terminals at merchant locations across the country dial an 800 number that is terminated on a large hunt group of modems, connected directly to the acquirer's front-end processor (FEP). The FEP is typically a fault-tolerant machine, since an outage here will take out the entire service. A large acquirer will typically have two or more centers for terminating the 800 service. This allows better economy, due to the nature of 800 service tariffs, and allows for disaster recovery in case of a failure of one data center. An advantage of 800 service is that it is quite easy to cover the entire country with it. It also provides the most effective utilization of your FEP resources. (A little queuing theory will show you why.) However, 800 service is quite expensive. It always requires 10 (or 11) digits dialed, and in areas with pulse dialing it can take almost three seconds just to dial 1-800. The delay between dialing and connection is longer for 800 calls than many other calls, because of the way the calls get routed. All of this adds to the perceived response time at the merchant location, even though the acquirer has no control over it.
Large acquirers prefer to offer some form of local access service. In this service, terminals at the merchants dial a local telephone number to gain access to the acquirer. Typically, the local number actually connects to a packet network, which then connects to the acquirer. If the packet network is a public network, the terminal must go through a login sequence to get connected across the packet network. Typically, local calls are much less expensive than 800 service calls, and local calls typically connect faster than 800 calls. The cost of those calls are absorbed by the merchants directly. In those few remaining areas where local calls are still free from a business line, this works out well for the merchant. Otherwise, the merchant can end up spending a lot of money on phone calls. Usually, the acquirer has to offer lower prices to accepters who use local calls, to help offset this. Even so, these networks are generally much less expensive for the acquirers. Such networks are difficult to maintain, due to the distributed nature of the access network. Since most packet networks are much more likely to experience failures than the phone network is, the merchant's POS terminal is usually programmed to dial an 800 number for fallback if the local number doesn't work. Also, it is generally not cost-effective to cover every free calling area in the entire country with access equipment, so some 800 service is required anyway. There is also an administrative headache associated with keeping track of the different phone numbers that each merchant across the country needs to dial. When you have tens of thousands of terminals to support, this can be formidable.
Acquirers are beginning to experiment with Feature Group B (FGB) access. FGB access was the method of access used to get to alternative long-distance carriers before "equal access" was available. The tariffs are still on the books, and they are favorable for this application. FGB access provides a single number, nationwide, for all merchants to dial in order to gain access to the acquirer. The call has simpler (hence, presumably, faster) routing than 800 service, and the call is charged to the acquirer, not the accepter. FGB access does have to terminate on equipment that is physically located in the Local Access Toll Area (LATA) where the call originated, so there is the problem of having distributed equipment, as above. This also implies that it is not cost-effective to deploy FGB access everywhere, as well. There are also some technical oddities of FGB, due to its original intent, that have made it difficult to implement so far.
The other big switched access capability that is likely to have an impact in the future is ISDN. So far, this has been inhibited by limited availability and lack of adequate equipment on the merchant end, but it could be very beneficial when these problems are solved.
Private-line networks are pretty straightforward applications of point-to-point and multipoint private lines. Since private lines are quite expensive, engineering of the networks is challenging. Usually, sophisticated software is used to determine the optimum placement of concentrators in order to minimize costs. Since tariffs, real estate prices, and business needs change frequently, maintaining a stable, cost-effective network is hard work. A typical asynchronous private line network will have multiplexers at remote sites, with backbone links to companion multiplexers at a central site. Synchronous private line networks may use multiplexers, or remote controllers, or remote FEPs, depending on the application and the availability of real estate.
INTERCHANGE NETWORKS
Interchange networks physically consist mostly of point-to-point private lines. In many of the large interchange networks, there is a central "switch" that takes transactions from acquirers (thereby acting as an issuer), and routes them to issuers (thereby acting as an acquirer). Often the switch provider will actually be an acquirer or issuer as well, but this is not always the case. Usually, the provider of the switch defines standard message formats, protocols, and interchange rules. These formats and protocols usually comply with national and international standards, but sometimes do not. Often the switch will provide translation between different message formats and protocols.
The switch provider is generally very concerned that settlement complete successfully. Failure to settle with one or more large issuers can leave the switch provider with an overnight deficit of a couple million dollars. Even though this is a temporary situation, it has significant financial impact.
In some current networks, authorization and settlement take place on completely separate facilities, with separate hosts in some cases. This is mainly due to the history of the industry in this country. Recall that authorizations were originally done by voice calls, and settlement was done by moving paper around. These two processes were automated at different times, by separate means. Thus VISA has a BASE 1 network for authorization, and a BASE 2 network for settlement. Likewise, MasterCard has INET and INES, one for authorization and one for settlement. These functions are becoming less and less separated as communication and computer facilities evolve, and will probably be completely integrated over the next five to ten years.
Interchange networks are probably the most volatile part of the ATM market right now. There is currently a shakeout going on in much of the market, with larger, more aggressive regionals buying out standalone networks and smaller regionals. This causes local banks to change local and national network affiliation from time to time. So a card may work in a given ATM one day, but fail in that machine the next, which confuses many consumers. Most large regional and national networks have operating regulations requiring labeling of ATMs and cards, so that if you see the same logo on your card and the ATM, you can be pretty sure it will work.
Some regionals are interconnected, and others are not. The two biggest nationals, Cirrus and Plus, have operating regulations that effectively prohibit a member of one network from connecting to the other. But a regional on Cirrus could be connected to a regional on Plus. In that case, whether a machine will take your ATM card depends on the routing algorithm used. In most cases, the acquirer will have a table of issuers that are directly connected, and will send anything else to the regional switch. The regional switch will have a table of each issuer it is directly connected to, and tables of which cards are acceptable to other regionals it interchanges with. Anything else goes to the national switch. The same process happens in reverse from there. Often the order of search in the routing tables is determined by fee scales, not geography, so transactions can be routed in completely non-obvious ways.
So the easiest way to tell if your card will work in a given ATM is to stick the card in and try. I don't know of any machine that will eat a card just because it can't route the transaction - it will generally give some non-specific message about being unable to complete the transaction and spit the card back out. Of course, if the transaction is completed from a machine that you're not sure of, you also aren't sure what the fee is going to be if your bank passes those fees on to you. Sometimes the fee will be printed on the receipt, but usually it isn't. If you do the transaction in a foreign country, you may not know the exchange rate used. (I once couldn't balance my checkbook for a month until I got a statement with the transaction I did at Banc du Canada in Montreal.) But if you need the money and are willing to pay the fee, you have little to lose by trying out just about any ATM.
This completes the course in Credit Card 101. Hope you all found it enjoyable and informative.
Joe Ziegler
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