๐๐ผ๐ ๐ฑ๐ผ๐ฒ๐ Visa / Mastercard ๐บ๐ฎ๐ธ๐ฒ ๐บ๐ผ๐ป๐ฒ๐? - deep dive into the most successful payments companies.
Insights from Arthur Bedel.
Welcome to our latest edition of "Connecting the Dots in Payments with Arthur Bedel," where we explore the dynamic world of financial transactions and innovations alongside this esteemed payments professional. Join us as we uncover insights and trends shaping the future of payments.
Let's take a look at the current payment ecosystem today:
Core:
๐ธIssuers - Chase, Citi, Revolut
๐ธAcquirers - Nuvei, Stripe, Adyen
๐ธCard Schemes - Visa, Mastercard, American Express
Additional:
๐ธPayment Orchestration - Gr4vy, Inc, ACI Worldwide, Cybersource, Spreedly
๐ธPayment Methods - Klarna, Alipay, Accrue Savings, Trustly
๐ธPayment Aggregators - PPRO, Payoneer
๐ธToken Vaults - VGS, Basis Theory, Spreedly
๐ธCrypto Solutions - Zero Hash, Mural
This 6-step diagram shows the economics of the credit card payment flow (by Alex Xu):
1๏ธโฃ The cardholder pays a merchant $100 to buy a product.
2๏ธโฃ The merchant benefits from the use of the credit card with higher sales volume and needs to compensate the issuer and the card network for providing the payment service.
The acquiring bank (Nuvei / Stripe) sets a fee with the merchant, called the "๐ฆ๐๐ซ๐๐ก๐๐ง๐ญ ๐๐ข๐ฌ๐๐จ๐ฎ๐ง๐ญ ๐๐๐."
3๏ธโฃ-4๏ธโฃ The acquiring bank keeps $0.25 as the ๐๐๐ช๐ฎ๐ข๐ซ๐ข๐ง๐ ๐ฆ๐๐ซ๐ค๐ฎ๐ฉ, and $1.75 is paid to the issuing bank (Chase / Revolut) as the ๐ข๐ง๐ญ๐๐ซ๐๐ก๐๐ง๐ ๐ ๐๐๐.
The merchant discount fee should cover the interchange fee.
The interchange fee is set by the card network (Visa / Mastercard) because it is less efficient for each issuing bank to negotiate fees with each merchant.
5๏ธโฃ The card network sets up the ๐ง๐๐ญ๐ฐ๐จ๐ซ๐ค ๐๐ฌ๐ฌ๐๐ฌ๐ฌ๐ฆ๐๐ง๐ญ๐ฌ ๐๐ง๐ ๐๐๐๐ฌ with each bank, which pays the card network for its services every month.
For example, Visa charges a 0.11% assessment, plus a $0.0195 usage fee, for every swipe.
6๏ธโฃ The cardholder pays the issuing bank for its services.
Why should the issuing bank be compensated?
โบ The issuer pays the merchant even if the cardholder fails to pay the issuer.
โบ The issuer pays the merchant before the cardholder pays the issuer.
โบ The issuer has other operating costs, including managing customer accounts, providing statements, fraud detection, risk management, clearing & settlement, etc.
Traditional card payments have been around for decades, ruling the overall payment space. They aren't going anywhere buuuut other forces are driving innovation & need to be brought into your payment stack for cost efficiency, higher acceptance and speed:
๐ธReal-Time Payments
๐ธOpen Banking
๐ธBuy Now Pay Later
๐ธDigital Wallets & Super Apps
๐ธEmbedded Payments (white labeling)
๐ธDigital Currencies and hashtag#CBDCs
๐ธCrypto Payments
Technology is driving & disrupting payments continuously! Open Banking, Embedded Finance, rise of digital currencies, AI boom and many more forces are the future ๐
eBay | Deel | Coinbase | Intuit
Source: Alex Xu from ByteByteGo
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โ๏ธย Arthur Bedel, Connecting the dots in payments... & Marcel van Oost