MasterCard 2009 Annual Report Download - page 18

Core Processing Capabilities.
•Transaction Switching—Authorization, Clearing and Settlement. MasterCard provides transaction
switching (authorization, clearing and settlement) through the MasterCard Worldwide Network.
• Authorization. Authorization refers to the process by which a transaction is approved by the issuer
or, in certain circumstances such as when the issuer’s systems are unavailable or cannot be
contacted, by MasterCard or others on behalf of the issuer in accordance with either the issuer’s
instructions or applicable rules. For credit and offline debit transactions, the Dual Message System
provides for the transmission of authorization requests and results among issuers, acquirers and
other transaction processors or networks. For online debit transactions, the Single Message System
switches financial messages and provides transaction and settlement reporting. Our rules, which
may vary across regions, establish the circumstances under which merchants and acquirers must
seek authorization of transactions.
• Clearing. Clearing refers to the exchange of financial transaction information between issuers and
acquirers after a transaction has been completed. MasterCard clears transactions among customers
through our central and regional processing systems. Credit and offline debit transactions using our
branded cards are generally cleared via centralized processing through the Global Clearing
Management System and the related information is typically routed among customers via the
MasterCard Worldwide Network. For online debit transactions, the Single Message System
performs clearing between customers and other debit transaction processing networks. MasterCard
clearing services can be managed with minimal system development, which has enabled us to
accelerate our customers’ ability to develop customized programs and services.
• Settlement. Once transactions have been authorized and cleared, MasterCard helps to settle the
transactions by facilitating the exchange of funds between parties. Once clearing is completed, a
daily reconciliation is provided to each customer involved in settlement, detailing the net amounts
by clearing cycle and a final settlement position. The actual exchange of funds takes place between
a clearing bank, designated by the customer and approved by MasterCard, and a settlement bank
chosen by MasterCard. Customer settlement occurs in U.S. dollars or in a limited number of other
currencies in accordance with our established rules.
•Cross-Border and Domestic Processing. The MasterCard Worldwide Network provides our customers
with a flexible structure that enables them to provide processing across regions and for domestic
markets. The network processes transactions throughout the world on our branded cards where the
merchant country and cardholder country are different (cross-border transactions). MasterCard also
provides domestic transaction processing services to customers in every region of the world, which
allow customers to facilitate payment transactions between cardholders and merchants throughout a
particular country. Outside of the United States and a select number of other countries, however, most
intra-country (as opposed to cross-border), domestic transaction activity conducted with our branded
payment cards is authorized, cleared and/or settled by our customers or other processors without the
involvement of the MasterCard Worldwide Network. We continue to invest in our network and build
relationships to expand opportunities for domestic transaction processing. In particular, the Single
European Payment Area (“SEPA”) initiative creates a more open and competitive market in many
European countries that were previously mandated to process domestic debit transactions with domestic
processors. As a result, in addition to cross-border transactions, MasterCard now processes some
domestic debit card services in nearly every SEPA country.
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