The Payments Value Chain

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The Innovation Project Summer School Value Chain

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The Payments Value Chain

  1. 1. The Traditional Payments Value ChainJune 18, 2013
  2. 2. The Payments Value ChainFive core stakeholders and numerous value-added service providersMERCHANT ACQUIRING BANK NETWORK ISSUING BANK CONSUMERISO/VARTerminalManufacturersCardManufacturersMerchantProcessorCardProcessorAuthorizationSettlement2
  3. 3. The Payments Value ChainFive core stakeholders and numerous value-added service providersAuthorizationSettlement3MERCHANT ACQUIRING BANKNETWORK ISSUING BANK CONSUMERISO/VARTerminalManufacturersCardManufacturersMerchantProcessorCardProcessorWorks in collaboration with acquiring banks tosell processing services to merchants. Manyacquirers are also ISOs.Establishes the formal relationship with the merchant.Supplies front-end POS equipment, services the account, andmanages risk associated with transactions. Most acquiringbanks also provide processing services. Discover and Amex,in some instances, also acquire relationships directly.Collaborates with networks and acquirersto design and manufacture the POShardware and software deployed withinthe merchant’s location.physically processes card transactions fromswipe to settlement via a front-endnetwork that enables connectivity to thepayments networks for an authorization toan issuing bank. Most acquiring banks alsoprovide processing services.
  4. 4. The Payments Value ChainFive core stakeholders and numerous value-added service providersAuthorizationSettlement4MERCHANT ACQUIRING BANKNETWORKISO/VARTerminalManufacturersMerchantProcessorISSUING BANK CONSUMERCardManufacturersCardProcessorMaintains the “rails” that connect the entire ecosystem. Establishes thestandards, rules, and manages the transactions between theacquiring and issuing entities. Receives authorization from acquiringbank and routes it to the appropriate issuer for approval.
  5. 5. The Payments Value ChainFive core stakeholders and numerous value-added service providersAuthorizationSettlement5ISSUING BANK CONSUMERCardManufacturersCardProcessorNETWORKMERCHANT ACQUIRING BANKISO/VARTerminalManufacturersMerchantProcessorReceives the authorization from the network and appliesthe “business rules” associated with any particulartransaction on behalf of the issuer. Many Issuers alsoprocess their own transactions.Services the consumer (cardholder) and manages cardholderrisk associated with balances, fraud, delinquency, charge-off, etc. Assumes FDIC responsibilities.Physically produces the card plasticin accordance with government,network, and issuer rules & regs.
  6. 6. PaysPercent of thetransaction toAcquiring Bank forcard acceptanceInterchange and networkfees to Network100% of interchange toIssuerFees to Network Fees and Interest (on credit)to Issuing BankReceivesImmediate paymentfor goods (1-3 days)Fees for risk and servicingfrom MerchantsFees from Issuing andAcquiring Banks foroperating the network,brand promotion, paymentand security standardsFees for risk and servicing fromCardholdersInterchange from NetworkConvenient way to pay,rewards for using certaincard productsThe Payments Value ChainFive core stakeholders and numerous value-added service providersMERCHANT ACQUIRING BANK NETWORK ISSUING BANK CONSUMERISO/VARTerminalManufacturersCardManufacturersMerchantProcessorCardProcessorAuthorizationSettlement6

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