Settlement Processing Assets and Obligations

3 Months Ended

Mar. 31, 2020

Settlement Processing Assets and Obligations

Settlement Processing Assets and Obligations

(3)       Settlement Processing Assets and Obligations

Settlement assets and obligations represent intermediary balances within the settlement process involving the movement of funds between consumers, card issuers, card networks, the Company, and its merchants.  The Company processes funds settlement through two models, the sponsorship model and the direct membership model.

In certain markets, the Company operates under the sponsorship of Member Banks to process transactions through card networks such as Visa and MasterCard. As such, the Company has an agreement with these banks which dictates the sponsorship services to be provided to the Company. It is the responsibility of the Member Bank to ensure that the Company is in adherence with card network standards. The sponsoring Member Bank serves as the acquiring bank (“Acquiring Bank”) under this model.

In other markets, the Company has direct membership with the various card networks and performs the process of funds settlement. As a direct member, it is the Company’s responsibility to adhere to the standards of the card networks. The Company serves as the Acquiring Bank under the direct membership model.  

The card networks operate as an intermediary between the card issuing banks and the Acquiring Banks, whereby funds are received by the card issuing banks and remitted to the Acquiring Bank via the card networks on a daily basis. The Company then remits these funds to its merchants, either through a Member Bank under the sponsorship model, or directly to merchants under the direct membership model.  Incoming funds due from the card networks on behalf of the card issuing bank are classified as receivables from networks in the table below, whereas the funds due from the Company to its merchants are classified as settlement liabilities.

The Company enters into agreements with its merchants which outline the fees charged by the Company for processing payment transactions and performing funds settlement. Under the sponsorship model, these agreements are between the Company, the Member Bank, and the merchant, whereas under the direct membership model, these agreements are exclusively between the Company and the merchant. Fees are either settled daily or monthly on a net basis or monthly through an invoice arrangement. Receivables from merchants as presented below represent amounts either net settled or invoiced to the Company’s merchants related to the various fees associated with the payment processing and funds settlement services provided by the Company.

As described in Note 1, “Description of Business and Summary of Significant Accounting Policies”, the Company collects funds from merchants that serve as collateral to mitigate potential future losses, and recognizes a corresponding liability which is presented as merchant reserves within the settlement processing assets and obligations table below.

While receivables from card networks and settlement liabilities due to merchants represent intermediary balances in the transaction settlement process, timing differences, interchange expense, merchant reserves and exception items cause differences between the amount the Member Banks receive from the card networks and the amount funded to merchants.

A summary of settlement processing assets and obligations is as follows:

	March 31,		December 31,
	2020		2019
	(In thousands)
Settlement processing assets:
Receivable from card networks	$	118,499	$	232,458
Receivable from merchants		81,858		96,179
Totals	$	200,357	$	328,637
Settlement processing obligations:
Settlement liabilities due to merchants	$	(200,256)	$	(363,545)
Merchant reserves		(87,072)		(85,757)
Totals	$	(287,328)	$	(449,302)