In this Article
Dr Jane Nweike harbours significant experience advising on a variety of corporate finance (including M&A, private equity and venture capital), capital markets and FinTech matters. Her work includes advising the likes of Citibank and MasterCard as well as FinTech startups. In this article, Dr Nweike explains the differences between payment gateways, merchant acquirers and processors and their roles within eCommerce transactions, as well as why Malta is the ideal location in order to provide such services throughout Europe.
Payment gateway v. Processor v. Merchant Acquirer
Payment gateways, payment processors and merchant acquirers all play very important and distinct roles in fulfilling ecommerce transactions. Each of these operators are able to provide their services provided that they are licensed under the Financial Institutions Act, Cap. 376 Laws of Malta. In order to understand the licensing framework for each of them, it is helpful to first outline what the activities of each entails and how they differ from one another.
Payment Gateway
This is the user-facing component of the payment process. A payment gateway is a software that collects the payer’s credit or debit card details (card number, PIN, CVV) and transmits them to the payment processor for back-end processing. After processing, the payment gateway also provides the payer with feedback on whether the payment was successful or not. Payment gateways include online interfaces for entering card details, as well as point of sales terminals.
Payment Processor
A payment processor is the technical solution on the backend that accepts the payer’s card details from the payment gateway and processes it. Processing involves communicating the card information to:
- the appropriate card scheme network (e.g. MasterCard, Visa),
- the issuing bank (the bank that issued the credit or debit card) to confirm if the transaction meets criteria to be fulfilled, e.g. that there are sufficient funds for the transaction in the payer’s account, and
- the acquiring bank.
The payment processor then provides feedback to the gateway that the transaction is either successful or unsuccessful.
Merchant Acquirer/Acquiring Bank
The merchant acquirer is a financial institution that maintains an account for the merchant (i.e.the entity or person that provides the service for which payment is being made). The merchant acquirer handles settlement with the issuing bank, credits the merchant’s account with the payment (after disbursing applicable fees to the card network), processes chargebacks, and in general deals directly with the funds on behalf of the merchant. The merchant acquirer could be either a traditional bank or an electronic money institution.
In summary, the payment gateway collects payment information, the processor processes it, and the acquirer executes the payment.
Licensing Framework
A company that intends to provide any of the above services in Malta will qualify as a payment service provider under the Financial Institutions Act and will be required to obtain a Payment Institution Licence or an Electronic Money Institution Licence (as appropriate) from the MFSA.
Why Malta?
For companies looking to provide services across the European Union, especially companies in the United Kingdom that have lost their passporting rights as a result of Brexit, Malta is an excellent jurisdiction to establish a presence.
Malta’s rapidly blossoming Fintech sector, solid legal framework for payment institutions and payment service providers, and innovation-friendly regulator set it apart as a choice jurisdiction for all kinds of Fintech business.
Further, the Financial Institutions Act incorporates the terms of the European Union’s Payment Services Directive and Electronic Money Directive (PSD2). In effect, this means that PISPs registered in Malta are free to passport their services to other EU/EEA countries either by establishing a branch or engaging an agent, provided they meet certain notification criteria.
Malta also has an effective corporate tax rate of 5%, (one of the lowest tax rates in the world) and a strong network of double tax treaties.
