How Mastercard operates How Mastercard operates
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So, you are binge-watching, The Haunting of the Hill House, on Netflix one weekend and on the beginning of, let's say the fifth episode, they alert you that your monthly subscription is over. It is that time for you to make a move on your Mastercard or PayPal, depending on what is flexible to you. If you are a fan of the Hill House, then you know that Victoria Pedretti rocks, and you cannot wait for another episode. If you do not have the slightest idea what Hill House is all about, that is a story for another #Movement.

I favour Mastercard and for the sake of this piece, let us say you do as well. Therefore, you load your funds on your prepaid card, you visit your Netflix account settings and restart your membership. Viola! You can start stressing your eyes again for the relish of Hill House. The process of online payment verification between your Mastercard and Netflix takes place in about 4.5 seconds. Or maybe 5 seconds. Now here comes the mystery part. Have you ever wondered why an internal bank transfer clearance can take more than a day, but Netflix subscription payment happens in three blinks of an eye? If the answer is yes, then this is an illustration of how Mastercard operates.

Mastercard is a brand of Mastercard Inc., a technology company with headquarters located in the U.S that facilitate digital payment on a global scale. Mastercard indeed offers credit card, debit card and prepaid card, as means of payment services, but it is not close to a banking institution. Mastercard, however, connects consumers and merchants via banks by acting as an intermediary that facilitates business transactions from one bank to another. Banks that affiliate with Mastercard has Mastercard brand logo embedded on their bank cards.

The Mastercard transaction process starts when a consumer wants to make an online payment. Let's say this is you trying to catch the fifth episode of The Haunting of the Hill House. Netflix domain will inquire you to fill your Mastercard details, which are your Mastercard number, CVV number and card expiry date. In some other cases like retail stores, you feel this information by swiping your card to an electronic data capture machine, also known as "card swiping" machine. The card-swiping system in that situation is the one that collects your essential card information.

The next process after the system collects the card details is transmitting the information securely to a merchant’s bank. In our case, the point of sale system sends the data obtained by the Netflix domain to Netflix's bank for authentication. Once the authentication process completes, the bank sends the information to Mastercard for clearance and authorization. Mastercard system validates the data received by the merchant’s bank with their servers. Following the serves' confirmation, Mastercard sends transaction information to consumer's bank for payment approval.

Consumer's bank receives the information from Mastercard and matches it against the consumer's bank account. The bank system checks if the consumer's account has enough funds to settle the payment. Back to our case, your bank scans your account to see if you have enough funds for another monthly subscription and transaction fee. Immediately after the transaction is approved, the consumer's bank initiates a response back to Mastercard. The reply goes back to the merchant's bank for consent.

The final step after the transaction is verified and approved is issuing of receipt and bill. Netflix will receive a receipt from their bank for your subscription payment, and you will receive a payment bill from your bank as well. A bonus, the bank and Netflix system are highly integrated, once the receipt issued your monthly subscription will resume. At last, you can enjoy that episode you have been waiting to watch. But before you go to your app or browser again, we went through the entire process, and we have seen how intense it is. Given the fact that Mastercard can take up to hundreds of transactions an hour, it still does not explain how this happens in 5 minutes.

If a bank transfer approval can take more than a day, what makes Mastercard transaction take less time? Well, apart from an excellent integrated system, Mastercard acts as your sponsor to the merchant's bank. How? Mastercard takes ownership of the payment liability and negotiates on your behalf. It sounds difficult that Netflix, located in California, U.S, can easily do a transaction with you residing in Dar Es Salaam for a short period without high-level security clearance. The moment that Mastercard receives the approval from a consumer's bank, they confirm the obligation to a merchant's bank on your account. Mastercard declares any liability in case anything goes wrong, for example, if the consumer's bank fails to deliver the actual fund to the merchant’s bank.

The process of starting your Netflix account might take 5 seconds, but actual reconciliation between Mastercard and the banks might take days, and real fund transfer might take longer. Anyways, you do not have to be worried about that, the fifth episode of Hill House is about to start. The terms consumer's bank and merchant's bank replace phrases “acquirer” and “issuer” respectively for a better explanation. I encourage further reading to understand how Mastercard operates. Additional research on topics like how does Mastercard charge fees on a transaction to licensed banks and how do banks reflect the expense to their customers is essential.

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Adam Kamulika
Written by

Adam Kamulika

Professional Accountant specialised in internal control implimentation and quality assurance review for small and medium organizations. Tech-savvy with passion for technology, especially tools and software that enhance productivity in work environment.

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