The Anatomy of the Swipe: Making Money Move

by Ahmed Siddiqui, Ahmed Siddiqui

Have you ever wondered what happens during a swipe of a credit card? Every major tech company will become a payments company. Yet, not many people understand how payment systems in the US work. Those that do “get it” are unlocking multi-billion dollar opportunities. If you’ve ever wondered what happens when you actually swipe/dip/tap your credit card or debit card then The Anatomy of the Swipe breaks down the details in the simplest manner possible. Here are some questions answered within these The Anatomy of the Swipe speaks to software developers and entrepreneurs who are looking at implementing card-based payments for the first time, merchants who want to be able to accept payments for a website or store, or those who want to issue their own debit/credit card. This book walks beginners through modern innovations created because of card-based payments, as well as the motivations and revenue models of each party in the payments ecosystem.

Content from the book plus more is taught via a cohort based course now

Genres: Finance, Business, Nonfiction, Technology, Economics, Banking, Professional Development

240 pages, Paperback

Published April 9, 2020

Reviews

[Jalal · Rating 2 out of 5]

If you are already familiar with payment systems a little bit, then this book is not for you, as it explains the card payment ecosystem in very rudimentary terms.
Another downside is that the author, as he says himself, is not so experienced in the payment world so this book is the result of his crash course learnings in the past couple of years therefore it misses lots of details. Furthermore the book frequently uses some of the "friend" companies as examples which is neither professional nor thorough.
It also only explains what is happening in the US market which is fine but the title of the book is misleading as it suggests a general statement. I was expecting to see some of the European payment systems, futile expectation.
The book repeatedly repeats itself a lot, so it really could be an article of 10 pages.

[Ashik Uzzaman · Rating 5 out of 5]

Last month a medium article on payments ecosystem through a LinkedIn connection Ahmed Siddiqui caught my eye. Its 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 to whom I could reach over slack. Then he told me about the new book he just published The Anatomy of the Swipe: Making Money Move. I bought the kindle book right away and started reading.

I found Ahmed left Marqeta just a few months before I joined. He drew upon his experience heavily at Marqeta in this book and I found it very relevant. Anyone new into the FinTech or want to know how payment systems work in US, this is a great read for them. He explained it with great illustrations, easy to understand language and covers both the theoretical and practical parts about all the relevant parties 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 or still continue to work in a daily basis including our CEO Jason Gardner.

Ahmed starts the book in a story telling mode of how he very accidentally 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 there. 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 the book.

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 Sonf 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.

Source: https://ashikuzzaman.wordpress.com/20...

[Sebastian Gebski · Rating 4 out of 5]

A bit card-centric, a bit US-centric, but still - the best intro to paytech I've seen (& I've read 3 books on that already). Well structured, illustrated with diagrams, starts with the basics & key lingo terms. I got a good refresher I was looking for.

So what did I miss? Details, details, DETAILS :)
- regulations / constraints (e.g., what's in PCI DSS)
- how does authentication work - what are methods and when they are used
- payment "backbones" - their specifics and major differences
- a walk-through for an example of payments API (hey-yes, I know I'm asking a lot)
etc.

I guess I'm not a standard reader - I'm really interested in "what's under the hood". But the word "anatomy" promises a lot, doesn't it? :)

So, still the best book on the topic. But because of the deficiencies, I can't go above 4 stars.

[Ieva Gr · Rating 5 out of 5]

Why I read it: I already have several years of experience working as a software engineer in digital payments. Want to start adding theoretical background to the understanding I’ve gained via my work.

What I liked about it:
It was easy and quite fun to read. It has all these comics to illustrate the concepts. At first I was a bit put off by that but started to like them eventually.

It was really focused on the payments flow and the movement of money – exactly what I was looking for.

It is structured to really help you remember things (via sections as key takeaways and coming up next). That causes some repetition, but for me this was the exactly right amount of repetition. I noticed I find it easier to reason about the payment flow now. + the key takeaways section will make it easy to get back to the book to double check something.

The examples mentioned were well known payments providers like Stripe, Adyen, Square.

What I disliked:
The book focuses on American market and regulations. I am still curious how the money flow looks in Europe (would really welcome any book recommendations for that).

[Ashika · Rating 4 out of 5]

good read to understand how card payments work, really changed my perspective!!

[Bruno Lucas · Rating 4 out of 5]

Great, short introduction to how payments work in the US in 2020! Recommend for anyone who's going into payments, as a founder or executive.

[Vlad Bezden · Rating 5 out of 5]

How modern payment works with easy to understand

When I joined Marqeta, I knew nothing about the payment. Onboarding documentation said that Marqeta is an "Issuing Processor," but I could not understand what that means. So I was desperate to find out how it works.
I was googling and reading everything I could, but I still could not get the complete picture of the whole flow of money. Then, at some point, I read an excerpt from this book, and reading it, I started to understand how it works. Five minutes later, I was reading the book :).
First of all, the book clearly explains all parts involved, their role, and how they communicate. Second, it has excellent visual graphics that help a lot to understand.
If you are new to payment, I think this is the book you should start reading before diving into individual parts and more details.

[Izzy Kipnis · Rating 4 out of 5]

very informative, but a little dated (naturally)

[Zach Newcomb · Rating 4 out of 5]

You won’t be a payments expert by reading this, but it probably puts you in the 90th percentile. I still have plenty of questions about payments, but they’re better questions than I had before reading it.

[Niloy Mukherjee · Rating 4 out of 5]

Great intro to Payments in the US 101 circa early 2020s

[Jason Zhao · Rating 4 out of 5]

Thorough, accessible, and enjoyable overview of the payments industry. Great deep dive into the symphony of interactions that makes a single financial transaction possible.

[Isaac Chan · Rating 3 out of 5]

I truly learned a great deal from this book. Although I don’t work in retail banking or the payments industry, I had been itching to learn about the space for some time now, because it’s likely that it’ll eventually become important in my line of work anyway (presumably on the transaction banking and cash management domains, of collecting back the money that I’ve lent out), and also because I’m genuinely curious about the fintech entrepreneurship opportunities in this ecosystem. And anyway, as a commercial banker, it is inexcusable for me to be clueless about payments, cards and wires.

Notes on some things I learned (not exhaustive, ofc):
1. 3 main players: Acquirer processor, Issuer processor, their respective banks, and Card networks (notes 3, 5, 7 on how they make money. Merchant pays them all.)
2. The relationship between an acquirer processor (the merchant’s side) and an issuer processor (the consumer’s side), and their respective banks
3. Mastercard and Visa are merely card networks that make money by charging the Network Assessment Fee (akin to charging tolls) (Merchant pays this - a fee to use the network)
4. Pending transactions arise due to merchants ‘clearing’ their transactions at EOD. (link to question 1)
5. Issuer banks make money by charging the Interchange Fee (Merchant pays this)
6. Issuer banks demand a higher Interchange Fee for credit cards, to compensate for the credit risk.
7. Acquirer Processor makes money by charging an Acquirer Fee from the merchant
8. So, a bank makes money by helping as many merchants set up acquirer processors (and receive the Acquirer Fee) and issuing as many cards (and receive the Interchange Fee)
9. Chargeback = The consumer requests basically a refund from the merchant if the transaction wasn’t done by them.
10. Merchants can dispute the chargeback. If the dispute is successful (the merchant can provide a receipt), the issuing bank might just eat up the loss
11. Apparently, the US has smtg called the Durbin Amendment which to my understanding basically caps Interchange Fees. This protects consumers from paying too much fees (look into this further)
12. Only banks (or at least, FIs with a license/ Charter) can issue cards. Thus, neobanks (which includes Revolut & Monzo) actually just partner with banks (to issue the relevant cards). To my understanding, these partner banks are usually regional banks with less assets and so are exempt from Durbin Amendment and thus can charge higher Interchange Fees (this ability to charge higher Interchange presumably helps with the neobanks’ margins I suppose)
13. ACH = Automated Clearing House. Apparently, this is a US network of banks that came together to enable a swifter interbank money movement. (Look into this)
14. Small businesses which can’t afford to use a proper Acquirer Processor (or at least, it doesn’t make sense for them to use one) use either: an ISO (Independent Sales Organization). These entities have a license to sell Merchant acquiring SERVICES from actual Merchant Acquirers
15. Or they use a ‘Payments Facilitator’. To my understanding, these are new players who are disrupting the Merchant Acquirer space. They are basically mini-Merchant Acquirers. They even offer fast WC loans. They can onboard a customer way faster than a traditional Merchant Acquirer.
16. But once a small business gets big enough, it usually makes sense for them to use an actual Acquirer Processor. (iirc a drawback of using an actual AP is that you have to manage your own chargebacks.)
17. I learned of another fintech player disrupting the space: Expense management startups. Basically, it’s hard for companies to manage their expense reports when employees use their personal cards (cuz the financial controller can only summate the expenses end of month. This process is also an inconvenience to the employee.) These startups basically issue company cards - the controller can track expenses in real time.
18. The crazy thing is that apparently these players make enough money from the Interchange that they don’t even need to charge their clients (the companies who use their cards) anything. This is an insanely desirable business model.


Questions that remain unresolved/ await further research:
1. Why are pending transactions (on cards) even still a thing? With the speed of the internet, why can’t funds clear immediately? (Especially since most of the time I have more than enough funds for my daily purchases) Could it be the case that above a certain limit, we have to wait for banks to clear EOD? Or merchants who take their own sweet time in clearing transactions? But then sometimes my transactions will pend for several days.
2. Merchants have to clear transactions manually every day? Wtf?
3. What about those cina business owners I hear who still PHYSICALLY deposit their funds at the branch every EOD? They don’t have payment terminals? What r they doing?
4. I understand card networks like Mastercard and Visa now but still need to further understand Fedwire. (and for that regard, SWIFT) I would hazard that Fedwire is only used by FIs and for commercial transactions, but I’d need to look into this.
5. How tf does the Durbin Amendment not create shortages?
6. My read of these neobanks and new Fintech players is that their edge is that their system authorizes a loan (tbf, small loans usually) in seconds? So why tf do we still need so many ARMs and credit officers, then?
7. ACH in Malaysia?
8. Could a high chargeback be an actual operating risk that I have to take into account? (When evaluating a business, I mean)
9. Still haven’t figured out wtf wallet sizing is.
10. Research neobanks further - I wonder if traditional banks will really get squeezed by these nimbler players. So many of these digital banks also offer fast loans.
11. This book taught me a lot about personal and business payments but not so much about corporate payments. Or, large sums of money in general. Or, inter-financial institution wire payments. Those payments presumably have completely different considerations. Important to understand for corporate banking.
12. Incidentally, I got rlly interested in the economics of ride-sharing networks like Grab and Uber. Why tf is Grab becoming basically a digital bank now? I wish there were a good blog/ podcast/ newsletter on (micro)economists in tech.
13. I still need to slowly put together the pieces for the larger question - how does the payment ecosystem fit into my macroeconomic framework as a whole?
14. CBDCs? This book doesn’t consider this at all.
15. Crypto payments?
16. This Buy Now Pay Later thing - really seems hella frothy to me. How do I build a framework to think about this systematically? Is there really an opportunity to structure CDOs around this? Or future business opportunities for bad debt management/ collection.
17. How to think about terrorist financing/ money laundering etc? Those payments do not run on the regular system. How do I sniff them out?
18. Would love to understand further how the financial plumbing of sanctions work

[Jordan Raine · Rating 4 out of 5]

This short book gives a useful overview of how payment systems work, with a focus on card payments. The author brings you along his journey to understand payment systems and how they relate to someone working at a company who must accept payments from customers, payout contract workers, and other more complex uses (like personal shopper).

I came to the book after working for six months at a payments company and still found it to be a good overview with some tidbits that were new to me.

If you work in a position that deals with card payments, this will give you a tailwind to learning how the pieces fit together (issuing, authorization, clearing, interchange, and more).

[Hnkl · Rating 5 out of 5]

This book on the payments industry has been incredibly valuable for me. As someone who recently started working in the payments space, an industry I had little prior experience in, I found this book to be an essential resource.

Before reading this book, I was still quite confused about many of the key terms and concepts, even after a one-month extensive onboarding training, hence my starting to look for other resources for self-learn. This book did an excellent job of clearly explaining all the important terminology and concepts in a way that made them easy to understand, even for someone new to payments like myself. What I found particularly helpful were the real-world examples the author used to illustrate the flow of payments and how money moves between different parties during a transaction. And also the glossary at the end of the book, which I saved for future use :)

Highly recommend this book not just to those working in the payments industry, but to any reader looking to gain a better grasp of how payments work. In our daily lives, we all participate in the payments ecosystem through our regular transactions, so having this foundational knowledge is invaluable.

Also a special read because this is probably the first non-fiction/business book I have actually finished lol

[Matias · Rating 2 out of 5]

This book has about enough content to justify 20 pages, not 200. The writing is not very good - it's even confusing at times - and could use heavy editing. Important details are totally glossed over while basic concepts are repeated over and over again in slightly different words. The examples used feel unclear and unprofessional, with apparently made-up companies mixed with real companies that the writer might or might not have a stake in (this is not made clear at any point). The book is totally US-centric which makes it even less useful, as European payment systems and conventions are totally different in many ways.

I cannot recommend this book if you seriously need to learn about payment systems. But I've got to cut the book some slack: the approach is so casual and the information density so low, reading 10 to 20 pages a night was a surprisingly good way to wind down for sleep. And I guess I did learn approximately one Wikipedia article's worth of payment basics while doing so.

[Seth · Rating 3 out of 5]

VERY clearly written for a tech audience, complete with thoroughly unhelpful pictures (not diagrams, pictures). Some of the content decently updates the vastly superior Payments Systems in the US by Benson, but a new version of Benson would completely obviate this book. Siddiqui himself describes the Benson book as difficult for "visual" learners. I wonder why "visual" learners read books at all then, because Benson's book provides much more succinct and better written vignettes than Siddiqui's.

Another major weakness, Siddiqui essentially pitches the business models of Silicon Valley payments companies he has worked for and presumably still owns equity in (Marqueta, mostly), rather than spending the same time describing larger and more important ones (Stripe). Cryptocurrencies also received more attention in Benson's decade-old text, which just feels embarrassing.

[luannie · Rating 4 out of 5]

I started reading this book out of necessity for my work, seeking an entry-level understanding of how payments function.

What do I like: Overall, this book is suitable for those without a solid foundation in the subject. It features clear illustrations and key summaries at the end of each chapter, making it well-structured and easy to follow.

Even better if: However, I found that I will likely need a more in-depth book as a follow-up to expand my knowledge further. Additionally, the content is not the most updated; for example, I was looking for specific details about transactions in eWallets, which have become a common payment method today, which at least this book gives me some foundation for further research on my own!

[Minh · Rating 5 out of 5]

An excellent guide on how payment systems work, especially in the US. It covers quite comprehensively what happens behind the scenes after you swipe your card or key in your PIN. The book explains why some neobanks can offer services without a lot of attached fees as well as the pros and cons of becoming a direct merchant vs a sub merchant.

It can be daunting and confusing to learn about payment systems as they are highly complex and some concepts are pretty abstract. The book explains key concepts very well so that even non-technical folks can understand. Highly recommend if you are interested in fintech or how payment systems work.

[Noah Stebbins · Rating 3 out of 5]

It covers a lot of the behind-the-scenes actions of card swipes including how all of the different players are involved and how different players make revenue.

Unfortunately, I found some of its terminology ambiguous after a first read. For example it's not crystal clear what the relationship is between an issuing bank, program manager, co-brand partner, and issuing processor. For example, it mentioned that both the program manager and co-brand partner may market cards to prospective customers - so what exactly is the difference between both?

All in all, good supplemental reading though when working in fintech.

[Yash E · Rating 5 out of 5]

An excellent introduction to understand the credit card payments flow! Anyone entering or working in the payments industry, this is a must to get an overall picture of how things move behind the scenes. This good only as a beginners guide and would only provide a rough overview of things. Given the dearth of such literature for newbies to payments industry such as me, this would set you in the right direction to do your own research. Does a great job in putting things in lay terms so as to not overwhelm even the casual readers! But if you're looking for technical depth and already familiar with flow, this wouldn't be of much help.

[The Viet]

"The Anatomy of the Swipe: Making Money Move" was precisely what I needed. Despite having read several books about payment systems, I still felt some uncertainty about how things work in practice. However, this book provided detailed insights that filled in many gaps in my knowledge. It effectively summarizes and builds upon what I've learned from books, documentation, and discussions at work. I particularly appreciated how it reinforced key points through repetition and humor, which greatly aided my understanding.

[Rafal · Rating 3 out of 5]

Dobre wprowadzenie do płatności kartami kredytowymi i debetowymi. "Dobre" po części dlatego, że nie ma za dużej konkurencji wśród publikacji.

Niestety ciężko nie odnieść wrażenia, że książka służy reklamie firmy autora. A cały mający to miejsce product placement wcale nie jest subtelny.. do tego męczą inne sprzedażowe hasła z przymiotnikami w stylu "delightful experience".

[Marthe Naudts · Rating 4 out of 5]

Super useful overview, and came away understanding individual components of issuers/processors/schemes etc, although could have had more on PSPs and companies that do a mix of everything- eg the explanation of square and being both a processor/acquirer bank was great, would’ve loved a similar section explaining eg Stripe/adyen etc.

[Cooper · Rating 4 out of 5]

Very difficult to get through if you don’t have a strong interest or clear reason to get through this book. That being said, it’s probably the best primer payments book that doesn’t require a deep technical background to understand at first read. Uses lots of real world cases and tries to distill everything to the most key and pertinent information.

[Raj Patel · Rating 3 out of 5]

One of the very basis book written on payments.

Good read for the one who wants to understand high payment flow, different parties involved, the role of them and how each parties make money.

The one thing which I loved about it is how ahmed has predicted the future of tech companies, which is every tech companies have to become payment companies at the end….

[Laura · Rating 4 out of 5]

Good introduction what happens behind the scenes, when a payment is made. Better explained than every source I could find online. However, the author claims that the book serves people looking into building a payment company - I think for them it could be too basic.

[Natesh · Rating 5 out of 5]

Gives a good overview of the payments landscape. True to it's name, it details all the players involved behind a "swipe". Easy read with numerous examples for folks looking to understand payments better.

[Diego Recondo · Rating 5 out of 5]

Easy to understand and friendly for starters

I've enjoyed reading this amazing book. You start learning from the first page. I highly recomend for everyone who wants to understand the card payment processes

[Daniel Vaughan · Rating 5 out of 5]

clear and simple

This book explains many of the intricacies in he payments world. It’s not advanced but this simplicity is actually a pro. I work at a paytech and have recommended the book to new hires.

[Karl Lopes · Rating 2 out of 5]

Good but could be better

A good introductory text.. the examples are clear and easy to understand. However I left hungry for more information - I expected a lunch and got a tasty snack for my money.