Payment fundamentals. 7 chapters and a final quiz.

Chapter 1. A short history of payments.

To pay is to settle a debt in a way that is final and accepted by all. The money that makes this possible serves three functions: a unit of account (measuring value), a medium of exchange (circulating), and a store of value (holding its worth). The history of payments is the gradual dematerialization of this threefold contract of trust: from precious metal to banknotes, from banknotes to bank accounts, and from accounts to electronic signals.

France holds a unique position. It pioneered the smart card and has a powerful domestic scheme (CB), yet it is also the last major check-writing country in Europe. That mix of technological lead and legacy habits explains many of the quirks you will encounter in this course.

Chapter 2. Payment methods at a glance.

Three forms of money coexist. Cash consists of the banknotes and coins issued by the central bank. Commercial bank money exists as entries in bank accounts and moves by card, credit transfer, direct debit, or check. Electronic money is stored value held on a device or in a payment account, governed by the second E-Money Directive (EMD2). In France, commercial bank money accounts for the vast majority of the amounts exchanged.

Contrary to a stubborn misconception, Apple Pay, Google Pay, and other x-Pays are not payment methods. They are initiation channels that wrap a tokenized card, or in the future a credit transfer; Wero, launched by EPI in 2024, runs on SEPA instant credit transfers. The analysis stays the same: look at the underlying legal instrument, the network it travels over, and the guarantee attached to it.

Chapter 3. The ecosystem and its players.

A card payment involves half a dozen players whose roles are precisely defined by scheme rules and EU law. Understanding who does what, and above all who gets paid by whom, underpins any discussion of costs, fraud, or compliance.

PSD2 added two types of regulated players: account information service providers (AISPs, aggregators such as Bankin’ and Linxo) and payment initiation service providers (PISPs), which trigger a credit transfer from the payer’s account without using a card. All must be licensed or registered (in France, with the ACPR) and access accounts through dedicated bank APIs.

Chapter 4. The four-party model.

The four-corner model (or four-party model) dominates card payment architecture. The cardholder and the merchant are customers of two different banks, the issuer and the acquirer, connected by a scheme. That separation is what makes cards universal. Any CB, Visa, or Mastercard card works at any merchant, without the two banks ever signing a contract with each other.

Two flows run in opposite directions. The information flow carries the authorization request from the merchant to the issuer, and the response back. The funds flow moves money from the issuer to the acquirer at settlement, net of interchange. Interchange is the fee the acquirer pays the issuer on every transaction, to compensate for the payment guarantee, the fraud risk, and the debit delay the issuer bears. Capped in Europe since 2015, it remains at the center of every economic battle in the industry.

• Interoperability: each bank builds a single connection (to the scheme) to reach all the others.
• Competition at every corner: issuers compete for cardholders, and acquirers compete for merchants.
• Shared rules: security, disputes, and guarantees are the same for everyone, which is the basis of trust.
• The trade-off: complex governance and multi-layered fees, which regulators watch closely.

Chapter 5. The life of a card payment, end to end.

A card payment unfolds in three stages of very different kinds. Authorization happens in real time, in anywhere from a few hundred milliseconds to two seconds; clearing is batch processing, overnight; settlement actually moves the funds between banks, on D+1. The cardholder sees only the first stage; the merchant’s treasurer deals mostly with the other two.

Stages 2 and 3 follow from the evening onward, when the terminal (or the PSP in e-commerce) sends the day’s batch of transactions to the acquirer. This step is the end-of-day batch upload, and it produces the batch deposit. The batches are then submitted for clearing, where CORE(FR), the French retail payment system operated by STET, calculates the net positions between banks. It processes around 30 billion transactions a year across all instruments. Finally, the net balances are settled in central bank money in T2, the ECB’s system, where settlement is final and irrevocable. The merchant is typically credited on D+1, net of fees.

Chapter 6. Key figures for France and Europe.

France is a card-heavy, cash-light country compared with the euro area average. Its domestic scheme is among the strongest in Europe. Yet it still clings to the check. Online, cards remain the leading payment method at French checkouts, alongside wallets, installment payments, and, from 2026, the first e-commerce rollouts of Wero.

Chapter 7. Regulation in 15 minutes: SEPA, PSD2, SCA.

Payments are so heavily regulated because they are infrastructure. Failures and fraud have systemic consequences, and network effects create dominant positions. The European framework has three goals: to harmonize (SEPA), to open up competition (PSD1/PSD2, interchange caps), and to secure (SCA, supervision).

SEPA: a single area for euro payments

The Single Euro Payments Area (SEPA) harmonizes credit transfers and direct debits: the same formats (ISO 20022), the same account identifier (IBAN), and the same timelines. It covers 41 countries: the EU and EEA member states, the UK, Switzerland, a few microstates, and, since 2024–2025, four Balkan countries and Moldova. Its scope keeps widening, with Moldova joining the SEPA schemes in 2025. France completed its migration on August 1, 2014, and Regulation (EU) 2024/886 marks a further step. All euro area banks have had to receive instant credit transfers since January 9, 2025, and to send them since October 9, 2025, at no extra cost compared with a standard credit transfer. On top of that comes a check of the payee’s name (Verification of Payee).

IBAN  FR76 3000 4000 0312 3456 7890 143

FR           country code (France) -- 27 characters in total for a French IBAN
76           European check digits (modulo 97)
30004        bank code
00003        branch code
12345678901  account number
43           national RIB key (French account check digits)

PSD2: opening up payments and making them secure

• Regulated licenses: payment institutions (PIs) and e-money institutions (EMIs) compete with banks in payments, under a license from the competent authority in their member state (the ACPR in France).
• Open banking: banks must open APIs to licensed account aggregators (AISPs) and payment initiators (PISPs). Customers regain ownership of their account data.
• Payer protection: refunds for unauthorized transactions, with the payer’s residual liability before reporting the card lost or stolen cut from €150 to €50 (€0 if strong authentication was not required).
• Ban on surcharging consumer card payments in the EU.

SCA: strong customer authentication

Since September 14, 2019 (the PSD2 regulatory technical standards, or RTS), every electronic payment initiated by the payer requires, in principle, strong customer authentication. It takes two independent factors from three categories: knowledge (a code or password), possession (an enrolled phone, a card), and inherence (biometrics). In practice, for cards, SCA runs through 3-D Secure 2 and approval in the banking app. Exemptions avoid adding friction where risk is low: