Payments Law Tool Kit

Venable / 36 35 / Venable Sponsor Bank, Processor, and Merchant Agreements they offer, and the industries they serve, and it is important in each case that the payments company execute an agreement with its sponsor bank that aligns with its current and future business goals. From a payments company’s point of view, some of the key factors are making sure that the agreement meets its financial needs, provides sufficient day-to-day control to allow for smooth and flexible operations, and establishes a strong working foundation with its sponsor bank for ensuring regulatory and payment network compliance. Merchant Agreements Establishing a solid merchant processing relationship for the acceptance of payments for sales transactions is a key back-end function that no retailer should neglect. In addition to processing payments through the credit and debit card networks, payment processors can provide helpful analytical tools, dispute resolution, data security assistance, and other products or services related to card processing. Merchants should consider these best practices to minimize legal, regulatory, and business problems related to payment processing: • Accept cards for payments consistent with your merchant processing agreement, card network rules, and applicable laws and regulations • Handle payments, refunds, returns, and exchanges properly, and in a timely manner • Comply with payment card industry data security and storage requirements • Use encryption and tokenization to secure payments • Take proactive steps to minimize fraud and cardholder disputes (chargebacks) • Continually strengthen your understanding of the payments industry and your responsibilities in accepting payments The payments ecosystem has multiple layers of stakeholders, including card issuing banks, the card networks, merchant acquiring banks, processors, independent sales organizations, payment facilitators, and software providers. Most payment services involve some or all of these players, and their interactions are typically governed by a complex set of contractual arrangements. Setting up a successful program requires understanding and navigating these challenges. Our payments attorneys work with numerous sponsor banks, payment processors, payment facilitators, and ISOs to help set up agreements that protect their financial interests and meet their regulator obligations, while providing flexibility to help facilitate workable relationships with payments companies of all sizes. Sponsor Bank Agreements Pursuant to the card brand and National Automated Clearinghouse Association (NACHA) rules, banks are the financial institutions responsible for sponsoring various payment intermediaries (like processors) and merchants into the payment systems. While some acquiring banks have their own direct portfolio of merchants, many outsource their acquiring functions to third parties, such as payment processors, payment facilitators, and independent sales organizations (ISOs). Whenever a bank sponsors a payments company, the bank is required by its prudential banking regulators and the card brand and NACHA rules to enter into an agreement that sets forth the scope of services, allocates responsibilities and liabilities, ensures compliance with law and the applicable payment network rules, and provides the bank with sufficient oversight and control of the program. Payment Processor, ISO, and Payment Facilitator Agreements Stepping down a level from acquiring banks, much of the day-to-day payments work is carried out by various payment intermediaries, including payment processors, payment facilitators, and ISOs. There can be tremendous variation in these types of businesses, the services