A Complete Model of the Payment Service Business

A Complete Model of the Payment Service Business

A Systems Approach

1

IntroductionThis slide deck provides a complete picture of the underlying skeletal structure that holds every payment service business together while achieving its goals.

The model introduces a comprehensive framework for managing the complexity of the payment service business structure, and a reusable blueprint for visualizing how a payment service business enterprise actually does business. The model’s clearly-defined core-processes and their functions provide a powerful baseline for improving business performance.

By viewing the payment service business as a single system, fully independent of its implementation, the nature of its underlying core processes becomes clear. Then by managing and improving them as parts of a single system, substantial improvements can be made on critical success factors.

2© 2016 Frank Steeneken - All Rights Reserved

Purpose

The purpose of the model is to clearly portray how work performed in the payment service business is structured, apart from the way it is managed and controlled. To provide this clarity, feedback loops and control systems are not shown on the diagrams.

The model’s subsystem/core process matrix can be applied to help realign a company’s organization structure and business processes, with its inherent functional structure.

The method used to develop this model is called “Integrated Modeling Method.” www.ackley.com.


4

Merchants

Payment Service Business(system)

Consumers

Consumers

Issuers

Payments Value Chain

© 2016 Frank Steeneken - All Rights Reserved

What is Payment Service Business?

A payment service business enterprise offers merchants online services for accepting electronic payments by a variety of payment methods including credit card, bank-based payments such as direct debit, bank transfer, and real-time bank transfer based on online banking. Typically, they use a software as a service model and form a single payment gateway for their clients (merchants) to multiple payment methods.

A payment service business enterprise can connect to multiple acquirer or issuing banks, card, and payment networks. In many cases, the service provider will fully manage these technical connections, relationships with the external network, and bank accounts. This makes the merchant less dependent on financial institutions and free from the task of establishing these connections directly, especially when operating internationally. Furthermore, by negotiating bulk deals they can often offer cheaper fees.

Furthermore, a full-service payment service business enterprise can offer risk management services for card and bank based payments, transaction payment matching, reporting and fraud protection in addition to multi-currency functionality and services (Wikipedia).

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Other Entities in the Payments Value Chain

A Consumer uses an electronic payment method (e.g. credit or debit card) to pay for services obtained from a merchant.

A Merchant is any business that maintains a merchant account that enables them to accept electronic payments by a variety of payment methods as payment from consumers for goods or services provided.

An Issuer bank or financial institution pays acquiring banks for purchases that their clients make. An issuer bank may issue cards to their clients (consumers). For a credit card it is then the cardholder's responsibility to repay their issuing bank under the terms of their credit card agreement. The issuing bank is also a member of the card associations (e.g. Visa and MasterCard). Card associations aren't banks and they don't issue cards or merchant accounts. Instead, they act as a custodian and clearing house for their respective card brand. For a debit card unlike a credit card, the money comes directly from the user's bank account when performing a transaction (Wikipedia).

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Subsystem

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Merchants

Issuers

Payment Gateway Provider

Payment Collector

Payment Acquirer

How is the Payment Service Model Structured?


Subsystems

A Payment Gateway (aka: Technical Service Provider) is a merchant service provided by an e-commerce application service provider that authorizes cards or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. The payment gateway may be provided by a bank to its customers, but can be provided by a specialized financial service provider as a separate service, such as a payment collector. A payment gateway facilitates a payment transaction by the transfer of information between a payment portal such as a website, mobile phone or interactive voice response service and the payment collector or acquiring bank (Wikipedia).

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Subsystems (continued)

A Payment Acquirer (aka: Payment Method Supplier) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks within an association. The acquiring bank enters into a contract with a merchant and offers it a merchant account. This arrangement provides the merchant with a line of credit. Under the agreement, the acquiring bank exchanges funds with issuing banks on behalf of the merchant, and pays the merchant for its daily payment-card activity's net balance—that is, gross sales minus reversals, interchange fees, and acquirer fees. Acquirer fees are an additional markup added to association interchange fees by the acquiring bank, varying at the acquirer's discretion. Acquiring banks often enlist the help of third-party membership service providers (MSP) to conduct and monitor the day-to-day activities of their merchant accounts (Wikipedia).

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Subsystems (continued)

A Payment Collector (aka: Membership Service Provider, Merchant Acquirer). A payment collector is not a bank, the actual handling of the merchants’ money is done by the processing bank that has contracted with the payment collector Typically, a payment collector can connect to multiple acquiring banks, card, and payment networks. In many cases, the payment collector will fully manage these technical connections, relationships with the external network, and bank accounts. This makes the merchant less dependent on financial institutions and free from the task of establishing these connections directly, especially when operating internationally. Furthermore, by negotiating bulk deals they can often offer cheaper fees. Furthermore, a full-service payment collector can offer risk management services for card and bank based payments, transaction payment matching, reporting, and fraud protection in addition to multi-currency functionality and services. Some payment collectors provide services to process other next generation methods (payment systems) including cash payments, wallets, prepaid cards or vouchers, and even paper or e-check processing (Wikipedia).

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What is a Core Process?

A core process adds value by connecting Merchants with Issuers.A core process is a major business process that produces an enterprise response to a market-related event and corresponds to a state in the payment service business enterprise’s product portfolio, package and transaction lifecycles.

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Payment Product Portfolio Life Cycle: lifecycle of the product portfolio composed of payment product processing services (e.g. credit cards) and added value services (e.g. managed fraud services) supported by the payment service business enterprise.

Payment Product Package Life Cycle: lifecycle of a merchant and the contractual obligated product package, a subset of the product portfolio, which has to be processed and delivered to a merchant.

Payment Product Transaction Life Cycle: life cycle of a payment product transaction supplied by merchant that has to be processed and delivered.

PaymentProduct Portfolio

Life Cycle

PaymentProduct Package

Life Cycle

PaymentProduct Transaction

Life Cycle


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Payment Collector

Payment Acquirer

Merchants

Issuers

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Core Processes Payment Service Business

Core

Pro

cess

Time

* e.g. disputes


Payment Collector


Payment Acquirer

Merchants

Issuers

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Workflow Directions

Workflow directions as responses to market related events


TimePa

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Port

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Def

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Paym

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FrameworkThe detailed subsystem structure provides the foundation needed to identify details of the core processes and how they are to be performed.

When the detailed subsystems and core processes are combined, they produce a grid like framework. Within this framework, each subsystem/core process intersection is interpreted as a business function to be managed and performed. In terms of work to be performed, the resulting array of subsystem/core process intersections displays the entire set of business functions of the payment service business.

A business function is an ongoing functional capability of the business that is sustained over time. A business function applies resources to accomplish a particular kind of work in response to incoming work requests. From an Object-Oriented perspective, a business function can be thought of as an "object" that responds to incoming messages.


BusinessFunctionSubsystem

Core Process

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A business function is identified by the intersection of a core process with a business subsystem.


Core Process (Functional) Subsystem Business Function

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Time

PaymentGatewayProductPortfolio

Definition

PaymentGatewayProductPortfolioDesign

Payment CollectorProductPortfolio

Definition

Payment CollectorProductPortfolioDesign

PaymentAcquirerProductPortfolio

Definition

PaymentAcquirerProductPortfolioDesign

PaymentGatewayProduct Package

Construction

PaymentGatewayProduct

TransactionAuthoriz-

ation

Payment CollectorProductPackage

Construction

Payment CollectorProduct

TransactionAuthoriz-

ation

PaymentAcquirerProductPackage

Construction

PaymentAcquirerProduct

TransactionAuthori-

zation


TransactionBill


TransactionFund


Transaction Bill


TransactionFund


Transaction Bill


TransactionSupport

PaymentGatewayProduct PackageDecom-mission


TransactionSupport

Payment CollectorProductPackageDecom-mission

PaymentAcquirer

TransactionSupport

Payment AcquirerSupplierProductPackageDecom-mission

PaymentGatewayProductPortfolioDecom-mission

Payment CollectorProductPortfolioDecom-mission

Payment AcquirerProductPortfolioDecom-mission


TransactionClearance





PaymentGatewayProvider

Payment Collector

PaymentAcquirer

PaymentProductPortfolioDefining

Individual Merchant MerchantMarket

MerchantMarket

Individual IssuerIssuer Market IssuerMarket

PaymentProductPortfolioDesigning

PaymentProductPackage Constructing

PaymentProduct TransactionAuthorizing

PaymentProductTransactionClearing

PaymentProductTransactionFunding

PaymentProductTransactionBilling

PaymentProductTransactionSupporting

PaymentProductPackageDecom-missioning

PaymentProductPortfolioDecom-missioning



PaymentProductPackageConstructing








Merchant

Issuer

Sequence flow State Transition

Payment GatewayProduct

TransactionFund


Further Decomposition of SubsystemsThe diagrams in the following slides show a decomposition of subsystems into sub-subsystems that will be used to create a more detailed framework.

Each subsystem has the same generic sub-subsystem structure that sustains business functionality:-Customer Market Relationship: responsible for identification and selection of payment product processing services and value added services, establishment of a promotional strategy and development of sales channels, intake of resources and distribution of produced payment product processing services-Service Settlement: responsible for pricing, sales contracts and settlement for the payment product processing services and value added services produced.-Service: responsible for producing payment product processing services and value added services.-Supplier Market Relationship: responsible for identification and selection of suppliers, establishment of sourcing contracts, distribution of resources and intake of (semi-) finished payment product processing services.


Payment Gateway Service

Payment Gateway Service Settlement

Merchant MarketRelationship

Payment Gateway Supplier (Market)Relationship

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Payment Collectors

Merchants

Subsystems - Payment Gateway Provider


Subsystems – Payment Collector

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Acquirers

Payment Gateways

Payment CollectionService

Payment Collection Service Settlement

Payment Collection Gateway (Market)Relationship

Payment Collection Supplier (Market)Relationship


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Issuers

Payment Collectors

Payment Acquisition Service

Payment Acquisition Service Settlement

Payment Acquisition Customer (Market) Relationship

Issuer Market Relationship

Subsystems – Payment Acquirer


Merchant

Issuer

Payment Gateway Merchant Market Relationship



Payment Gateway Supplier (Market) Relationship

Payment CollectionGateway (Market) Relationship

Payment CollectionService Settlement



Payment AcquisitionCustomer (Market) Relationship

Payment AcquisitionServiceSettlement

Payment AcquisitionService

Payment AcquisitionIssuer MarketRelationship

MerchantMarket

IndividualMerchant

Merchant Market

IssuerMarket

IndividualIssuer

IssuerMarket




PaymentProductTransactionAuthorizing












PaymentProduct TransactionFunding

PaymentProduct TransactionBilling


PaymentProduct MerchantDecom-missioning

PaymentProduct ProductDecom-missioning21


Merchant

Issuer













Payment GatewaySupplier Relationship

Product Portfolio Definition


Product Portfolio Design


Product Package Construction

Payment GatewaySupplier Relationship Product Transaction

Authorization

Payment GatewaySupplier RelationshipProduct Transaction

Clearance


Bill


Support


Product Package Decommission


Product Portfolio Decommission


Product PortfolioDefinition


Product PortfolioDesign




Product TransactionAuthorization


Product TransactionClearance


Product TransactionBill


Product Transaction Support


Product PackageDecommission



Payment GatewayService SettlementProduct Portfolio

Definition

Payment GatewayService Settlement Product Portfolio

Design

Payment GatewayService Settlement







Product Transaction Bill






Decommission

Payment Gateway Merchant Market

Relationship Product Portfolio Definition

Payment GatewayMerchant Market

Relationship Product Portfolio Design


Relationship Product Package Construction


Relationship Product Transaction

Authorization


Relationship Product Transaction Clearance


Relationship Product Transaction Bill



Support


Relationship Product Package

Decommission


Relationship Product Portfolio

Decommission

Payment CollectionSupplier Relationship


Payment Collection Supplier Relationship




Payment Collection Supplier Relationship Product Transaction

Authorization


Clearance

Payment CollectionSupplier Relationship Product Transaction

Fund


Bill


Support



Payment Collect.Supplier Relationship


Payment Collection Service











Product TransactionFund




Product TransactionSupport





Payment Collection Service SettlementProduct Portfolio

Definition


Design
















Decommission

Payment Collection Gateway Relationship




Payment Collector Gateway Relationship


Payment Collection Gateway Relationship Product Transaction

Authorization


Clearance


Fund

Payment Collection Gateway RelationshipProduct Transaction

Bill


Support



Payment Collect.Gateway Relationship


Payment AcquisitionIssuer Market


Payment Acquisition Issuer Market






Authorization

Payment Acquisition Issuer Market Product

Relationship TransactionClearance


Relationship Product Transaction Fund

Issuer Market Relationship Product

Transaction Bill






Product PortfolioDecommission

Payment Service Acquisition ServiceProduct Portfolio

Definition


Design

Payment Service Acquisition Service

Product PackageConstruction




Product Transaction Clearance









Payment Service Acquisition Service Product Portfolio

Decommission

Payment Acquisition Service SettlementProduct Portfolio

Definition


Design




Product Transaction Authorization




Product Transaction Fund







Payment Acquisition Service Settlement Product Portfolio

Decommission

Payment Acquisition Customer Relationship




















MerchantMarket

IndividualMerchant

Merchant Market

IssuerMarket

IndividualIssuer

IssuerMarket








PaymentProductTransactionSupport













Payment Gateway Service Product

TransactionFund


Transaction Fund






Application of the modelThe model can be applied to all types and sizes of payment service business enterprises. The model is intended to be used as a standardized template from which the unique characteristics of a specific payment service provider can be clearly identified. The unique features of different types of payment service providers may vary, depending on their business model, size, and payment product portfolio’s.

All of these differences can be viewed as variations on the common underlying theme presented in the model. This allows the model to be employed as a baseline template for understanding and defining all payment service situations.

In the following slides show three examples of the use of the framework in which a payment service provider acts as a :1. Payment Gateway2. Payment Collector and Payment Gateway3. Payment Acquirer and Payment Gateway


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Definition



Definition



Definition



Construction


TransactionAuthori-

zation


Construction


TransactionAuthori-

zation


Construction


TransactionAuthori-

zation


TransactionBill


TransactionFund


Transaction Bill


TransactionFund


Transaction Bill


TransactionSupport



TransactionSupport


PaymentAcquirer

TransactionSupport












Payment Collector

PaymentAcquirer



MerchantMarket





















Merchant

Issuer

Example #1


TransactionFund

Payment Service Provider acting as

Payment Gateway


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Merchant

Issuer




















Authorization


Clearance


Bill


Support
























Definition


Design














Decommission









Authorization







Support



Decommission



Decommission








Authorization


Clearance


Fund


Bill


Support


























Definition


Design
















Decommission








Authorization


Clearance


Fund


Bill


Support













Authorization






Transaction Bill








Definition


Design
















Decommission


Definition


Design
















Decommission





















MerchantMarket

IndividualMerchant

Merchant Market

IssuerMarket

IndividualIssuer

IssuerMarket






















TransactionFund


Transaction Fund





Payment Service Provider acting as

Payment Gateway


2626

Example #2


Definition



Definition



Definition



Construction


TransactionAuthori-

zation


Construction


TransactionAuthori-

zation


Construction


TransactionAuthori-

zation


TransactionBill


TransactionFund


Transaction Bill


TransactionFund


Transaction Bill


TransactionSupport



TransactionSupport


PaymentAcquirer

TransactionSupport












Payment Collector

PaymentAcquirer



MerchantMarket





















Merchant

Issuer


TransactionFund

Payment Service Provider acting as Payment Gateway

and Payment Collector


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Merchant

Issuer




















Authorization


Clearance


Bill


Support
























Definition


Design














Decommission









Authorization







Support



Decommission



Decommission








Authorization


Clearance


Fund


Bill


Support


























Definition


Design
















Decommission








Authorization


Clearance


Fund


Bill


Support













Authorization






Transaction Bill








Definition


Design
















Decommission


Definition


Design
















Decommission





















MerchantMarket

IndividualMerchant

Merchant Market

IssuerMarket

IndividualIssuer

IssuerMarket





















Copyright ℗2016 Frank Steeneken - All Rights Reserved


TransactionFund


Transaction Fund





Payment Service Provider acting asPayment Gateway

andPayment Collector

2828


Definition



Definition



Definition



Construction


TransactionAuthori-

zation


Construction


TransactionAuthori-

zation


Construction


TransactionAuthori-

zation


TransactionBill


TransactionFund


Transaction Bill


TransactionFund


Transaction Bill


TransactionSupport



TransactionSupport


PaymentAcquirer

TransactionSupport












Payment Collector

PaymentAcquirer



MerchantMarket





















Merchant

Issuer

Example #3

and Payment Acquirer


TransactionFund

Payment Service Provider acting as Payment Gateway


Merchant

Issuer




















Authorization


Clearance


Bill


Support
























Definition


Design














Decommission









Authorization







Support



Decommission



Decommission








Authorization


Clearance


Fund


Bill


Support


























Definition


Design
















Decommission








Authorization


Clearance


Fund


Bill


Support













Authorization






Transaction Bill








Definition


Design
















Decommission


Definition


Design
















Decommission





















MerchantMarket

IndividualMerchant

Merchant Market

IssuerMarket

IndividualIssuer

IssuerMarket





















andPayment Acquirer


TransactionFund


Transaction Fund





A Payment Service Provider acting as

Payment Gateway


Organizational DesignThe model’s subsystem/core process matrix can be applied to help design or realign a company’s organization structure with its inherent functional structure. This framework provides a tool for (re)assigning management responsibilities toward the more clearly defined business functions.

The business functions that are defined within the model’s structural framework can be mapped to those found on the actual company’s organization chart. The model can bring to light any fragmentation of a function across multiple organization units, as well as ambiguous paths of authority over essential functional work.


Business Process DesignThe overall sequential flow of work performed by each core process determines the flow of work as it encounters its sequence of business functions. In that context, the work performed by a given business function is viewed as a sub-process of the overall core process, and details of the work within the business function appear as lower-level activities within that sub-process.

The model provides a framework that clearly defines all business functions that are essential to the company’s product life cycle and operation. Each of these well-defined business functions can then be decomposed into lower levels of detail using well-established process modeling methods and techniques.


TakeawayThe model defines the inherent system structure that is common to every payment service business.

It provides an architectural framework of function and workflow that can be applied to better understand and improve a payment service provider’s business performance.

By identifying the payment service business complete core process and function structure, this model provides a highly efficient tool for more accurate business process identification, improvement and design.


Other Applications of this Method

http://www.bptrends.com/publicationfiles/01-03-2012-ART-Supermarket%20Article-steeneken-Ackley%20111226.pdf

http://www.bptrends.com/a-complete-model-of-the-multi-channel-super-market-business/

http://www.xr-magazine.nl/artikelen/2245/architectuurmethoden/basisbedrijfsmodel-terreinbeheer


Questions about the Integrated Modeling Method? Don't hesitate and contact me, I will be happy to answer them.

[email protected] https://www.linkedin.com/in/businessprocessarchitect/


Engineering

A Complete Model of the Payment Service Business