Interaction-less payments, how do they work?
I've seen a lot of payment gateways offer subscription payments: the user agrees to pay a recurrent fee at a fixed interval.
However, there are also services in which you pay a variable pay-as-you-go fee: Uber, Cabify, and of course Amazon Dash Button.
There is no user interaction to confirm payment whenever you use (or press) those services. How does this work? Can any merchant offer this service through a given payment gateway, or is it only offered for big merchants?
There seems to be also a country specific regulation in place. For example, Uber charges originate from Netherland:
And Cabify charges come from Spain:
I can't see why, since these services are not based in those countries.
So, can anybody explain to me how these agreements work? Is there any payment gateway that acts as intermediary on these transactions?
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When a user signs up to such services they will at some stage enter their payment details be this a credit/debit card or the details for an online payment platform such as PayPal. The required details can then be stored by the company for future reference.
Online payment platforms have their own ways of working but in effect once an organisation has your card details they have free rain to do as they please. There is no limitation on them except the agreement made when you sign up, relevant legislation and any inherent limitation of that mechanism (e.g. those associated with a credit limit). Thus charging different amounts at different intervals is allowed.
Card companies have no mechanism for assessing whether a user did an interaction that meets some arbitrary threshold or not, all they can assess is the details presented to them about that transaction (card details, charge, recipient , etc) and behaviour patterns based on other transactions.
It's worth noting that most of these transactions will be limited or tied to specific criteria for example the button will only order on the registered amazon account and items will only be delivered to a specific address. Similarly Uber likely required you to order the ride from an authenticated personal device that you can implement a reasonable level of security on at your own discretion or has a minimum requirement set by them (e.g. logging in before use).
In order to do that, merchants or payments-companies are using mechanism of tokens: when a customer is registered to the service or during the first payment the customer is required to pass its payment method details (the card credentials). Then the company that supply the service store a token that hold the data of the card and then in additional use the payment is passed to the Visa or MasterCard using this token. In this was the customers don't need to provide the card data on any transaction.
For more information about this technology (token-management - card-on-file) check Visa's article about it
or MasterCard's documents
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