The Innovation Project Summer School Value Chain

1. The Traditional Payments Value Chain
June 18, 2013

2. The Payments Value Chain
Five core stakeholders and numerous value-added service providers
MERCHANT ACQUIRING BANK NETWORK ISSUING BANK CONSUMER
ISO/VAR
Terminal
Manufacturers
Card
Manufacturers
Merchant
Processor
Card
Processor
Authorization
Settlement
2

3. The Payments Value Chain
Five core stakeholders and numerous value-added service providers
Authorization
Settlement
3
MERCHANT ACQUIRING BANK
NETWORK ISSUING BANK CONSUMER
ISO/VAR
Terminal
Manufacturers
Card
Manufacturers
Merchant
Processor
Card
Processor
Works in collaboration with acquiring banks to
sell processing services to merchants. Many
acquirers are also ISOs.
Establishes the formal relationship with the merchant.
Supplies front-end POS equipment, services the account, and
manages risk associated with transactions. Most acquiring
banks also provide processing services. Discover and Amex,
in some instances, also acquire relationships directly.
Collaborates with networks and acquirers
to design and manufacture the POS
hardware and software deployed within
the merchant’s location.
physically processes card transactions from
swipe to settlement via a front-end
network that enables connectivity to the
payments networks for an authorization to
an issuing bank. Most acquiring banks also
provide processing services.

4. The Payments Value Chain
Five core stakeholders and numerous value-added service providers
Authorization
Settlement
4
MERCHANT ACQUIRING BANK
NETWORK
ISO/VAR
Terminal
Manufacturers
Merchant
Processor
ISSUING BANK CONSUMER
Card
Manufacturers
Card
Processor
Maintains the “rails” that connect the entire ecosystem. Establishes the
standards, rules, and manages the transactions between the
acquiring and issuing entities. Receives authorization from acquiring
bank and routes it to the appropriate issuer for approval.

5. The Payments Value Chain
Five core stakeholders and numerous value-added service providers
Authorization
Settlement
5
ISSUING BANK CONSUMER
Card
Manufacturers
Card
Processor
NETWORKMERCHANT ACQUIRING BANK
ISO/VAR
Terminal
Manufacturers
Merchant
Processor
Receives the authorization from the network and applies
the “business rules” associated with any particular
transaction on behalf of the issuer. Many Issuers also
process their own transactions.
Services the consumer (cardholder) and manages cardholder
risk associated with balances, fraud, delinquency, charge-
off, etc. Assumes FDIC responsibilities.
Physically produces the card plastic
in accordance with government,
network, and issuer rules & regs.

6. Pays
Percent of the
transaction to
Acquiring Bank for
card acceptance
Interchange and network
fees to Network
100% of interchange to
Issuer
Fees to Network Fees and Interest (on credit)
to Issuing Bank
Receives
Immediate payment
for goods (1-3 days)
Fees for risk and servicing
from Merchants
Fees from Issuing and
Acquiring Banks for
operating the network,
brand promotion, payment
and security standards
Fees for risk and servicing from
Cardholders
Interchange from Network
Convenient way to pay,
rewards for using certain
card products
The Payments Value Chain
Five core stakeholders and numerous value-added service providers
MERCHANT ACQUIRING BANK NETWORK ISSUING BANK CONSUMER
ISO/VAR
Terminal
Manufacturers
Card
Manufacturers
Merchant
Processor
Card
Processor
Authorization
Settlement
6