Introduction to the participating roles in the pay-in and settlement Flow
In the previous post, we covered the basic activities in the payment domain. Now let's explore the participating roles in the pay-in and settlement flow of the B2C model.
Roles in the credit/debit card payment processing
Taking credit/debit card payment as an example, there are 5 main participating roles: Consumer, Merchant, Issuer, Acquirer, and Card Network.
- Consumer: The customer who makes payments on the e-commerce platform. In the credit/debit card domain, the consumer is also called the cardholder.
- Merchant: The owner of the e-commerce platform that provides value to the consumer.
- Issuer: The company (a bank or an authorized financial institution) that issues credit/debit cards to consumers. The consumer must abide by the issuer's terms to use the credit/debit card.
- Acquirer: The company (a bank or an authorized financial institution) that facilitates the payment flow in two ways: (a) Transmits payment information between the merchant and downstream participants, such as the card network and issuer. (b) Settles the funds of completed payments and transfers them to the Merchant
- Card Network: The company that defines the rules and guidelines of card processing and grants rights/permissions to issuers and acquirers to allow them to be in the same network. The Card Network handles payments of the participating banks in the same network. Major card networks include Visa, Mastercard, American Express, JCB, and Union Pay.
Let's examine how these five roles interact in the payment flow:
Consumer → Merchant → Acquirer → Card Network → Issuer
Payment processing variants
Beyond the traditional credit/debit card flow, there are several other payment processing flows:
A. Direct Integration with Payment Method Company
Flow: Consumer → Merchant → Payment Method Company
Examples include e-wallets or BNPL (Buy Now, Pay Later) companies that can directly integrate with merchants to provide pay-in and settlement services.
B. Integration with Payment Gateway
Flow:
Consumer → Merchant → Payment Gateway → Acquirer → Card Network → Issuer
Consumer → Merchant → Payment Gateway → Payment Method Company
A Payment Gateway provides technical solutions to connect Merchants with Acquirers/Payment Method Companies. Payment Gateways typically have existing integrations with multiple acquirers and payment method companies, saving merchants integration effort and reducing time to market. The Payment Gateway company doesn't handle settlement; this remains the responsibility of Acquirers or Payment Method Companies.
C. Integration with Payment Aggregator
Flow:
Consumer → Merchant → Payment Aggregator → Acquirer → Card Network → Issuer
Consumer → Merchant → Payment Aggregator → Payment Gateway → Payment Method Company
A Payment Aggregator integrates with multiple acquirers and Payment Gateways, acting as an intermediary handling payment information transmission between the Merchant and the Acquirer/Payment Gateway. Payment Aggregators may or may not handle the settlement process for the Merchant.
Summary
In this post, we went through different participators in the pay-in and settlement flow and introduced different payment processing flows (please refer to the diagram below). It depends on the Merchant’s business needs to choose the appropriate integration approach, as each approach has its own advantages and disadvantages. We'll explore the factors to consider when selecting an approach in a future post.
If you have any questions about this post, please leave them in the comments below. I'm happy to discuss them together.
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