OFF-US vs. ON-US transactions

OFF-US transaction

Most commonly transactions happen between banking institutions that are two separate entities. In other words, the merchant acquiring bank and the customer issuing bank are not the same bank. In the payments space this transaction type is also referred to as a OFF-US transaction.

The following diagram depicts a typical OFF-US transaction:

Since both banking institutions need to transact they will need a set of middle men to mediate the exchange of funds and goods and services.

ON-US transactions

In a scenario where the merchant acquiring bank happens to be the same as the customer issuing bank both entities are on the same network.

Example:

The UK’s biggest bank NATWEST serves both, retail customers and business customers (merchants). Hence, there is a good chance that a retail payment terminal is issued by NATWEST and so is the customer’s debit card. In this case the transaction occurs on the same network.

The following diagram depicts an ON-US transaction:

Since both entities are on the same network there is no need of middle men to mediate the exchange of goods and funds. This makes very cost effective for the merchants since a majority of the processing fees do not apply.

Card Networks (VISA, MC, AMEX, etc.)

Transactions occurring on an ON-US network are not sent through the traditional card rails and therefore are not visible to the card companies that have provided the customer’s card.

This can pose a significant challenge for embedded finance providers that are building experiences on top of traditional card rails.

The biggest observable ON-US market so far seem to be in the middle east (UAE especially), Japan and Brazil.