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Payment Ecosystem Explained with Top Trends

Each merchant wants to understand how to make the proper pay, and it’s a relatively unknown sector for a small business. Payments are part of the ecosystem. There are many processes to be implemented for the customers to pay you. When you need payment options on your website, you must understand the various options available to make the payment process more accessible.

The payment processing cycle

Payment processing processes are complex and have lots of moving parts. If a customer swipes a credit/debit card in a credit/debit card terminal, the transaction usually only takes one second—although the process involves many steps. Among these companies are payment processors that provide support services to merchants and may facilitate transferring cash between banks that handle merchant accounts or do settlements and banks that issue credit cards to consumers. This diagram shows the standard payment workflow.

The Payment Processing Ecosystem

The payment processing ecosystem cannot exist without a unified network. Instead, this is the same cycle. All ecosystems of issuers, acquirers, and networks are, therefore, unique regardless. Although we will not go into every payment processor industry in this guide, we will discuss some key concepts universal throughout the whole ecosystem and get you to know how things work. Recent news that Apple has launched its payment processor made our minds jump into ecosystems.

Payment Gateway and POS systems

Payment gateways are often mistaken for processors. However, they have different identities. It’s good that Stripe has overcome that misinformation. A simple payment gateway connects merchants with credit card processors that let consumers purchase products and services through a mobile app or website. The gateway typically enables users to use several payment types, such as digital payments, ACH debit cards, credit cards, and cryptocurrency. Payment gateways provide security to the transactions that occur when transferring from an eCommerce site to a backend processing system.

Payment service provider (Payment Processor)

This organization enables merchants and banks to authorize and process card transactions. It does everything necessary to facilitate the interaction between merchant banking and card associations. Most specialized processing companies earn money from charging transactions per transaction, annual statement fees, and annual PCI fees for the services. Payment services are providers of services involving payment processing and payment systems for customers. PSPs allow businesses to make payments using a variety of payment processors and payment methods to customers.

Issuing banks

Whenever you use your credit or debit card to buy something, the transaction has to get approval from the bank that gave the card. Hundreds of issuers exist within our country’s borders. Among those most commonly used are Citibank, Chase, HSBC, and others. The card issuer accepts payments whenever you use your available credit balance when using a credit card. A card offered by a card manufacturer carries a certain number of card networks, like Visa and MasterCard.

Merchant account

Merchant accounts are one bank account created by an acquired bank that allows the merchant to use credit cards as payment. The cardholder will swipe the money from your bank to your business bank account and deposit the cash into your business bank account. The merchant needs an account to pay. That isn’t possible unless the person uses cash. Usually, merchants are denied high-risk businesses whose business possesses high risk.

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Keep in mind that Merchant of Record should provide features and services, including:

1) A customizable shopping cart and checkout system

2) Integrated payment processing, including support for all major credit cards and PayPal

3) A comprehensive product catalog management system

4)Automatic order tracking and shipping notification

Credit card networks and card schemes

You probably remember most cards: Visa, Mastercard, American Express, and Discover. How do card schemes differ from other card schemes? Card Schemes are networks connecting cardholders to merchants and issuing banks. It is a set of rules to determine what card processing is. Cards also control payment aspects, including interchange rates and standardized fraud protection. Cards are widely distributed around the world.

Acquiring Banks

The acquisition bank is the bank able to accept credit cards from the merchant. The company is an intermediary between the merchant and the credit card networks. Besides coordinating payments, this company also offers assistance in creating and maintaining merchant accounts. The merchant acquirer also pays the merchant all the cash it owes on the credit and charges an additional fee.

The changing payment landscape: Industry Trends

Several essential trends are transforming the payment process ecosystem.

Payments in real time

Real-time payments go beyond standard ACH payments in providing immediate payment. The US economy has seen real-time payments grow significantly over the past decade, and 40 of those markets now offer payment processing solutions for payments. The United States currently has one real-time payment system called RTP® (Real-Time Payments), launched by FedNowSM and is expected to become operational by 2020. The Clearing House’s RTP network has partnered with the Federal Deposit Insurance Corporation to provide a payment platform for clearing or settling all federal funds.

Contactless Payment Adoption Increases

During the global pandemic, consumer awareness increased when purchasing goods at stores. In response, contactless payments were rising. The benefits of quick and comfortable shopping can also be enjoyed as pandemics close down and consumers remain in touch. Nearly 8 in 10 customers said they would use contactless payment in 2020. These trends are likely to last as around 82% are planning on using contactless post-pandemic, they say. Amazingly, the connection time of contactless cards and smartphones can be shortened by one to three times as fast.

Mainstream use of Cryptocurrencies

The increasing popularity of digital money prompted some merchants to adopt blockchain technology to buy the currency. Though crypto had its start as an exchange for payments and as a non-traditional investment, it is now firmly established as part of financial systems. PHINNETS said that 47 million Americans are considering purchasing cryptocurrencies. If this interest grows, the crypto wallet will increase as the consumer continues to use fast and simple payment methods.

New Fintech players

Big Tech has entered the payment industry. Traditional banks and players have combined the tech industry to become closer to the customers. Apple has partnered with Goldman Sachs to create the Apple credit card. In 2020 Amazon will try to improve its payment system by providing unsecured loans through the Marcus brand. It helps customers save time and money while allowing for more control over their finances and ensuring the security they require from the banks and the government.

Digital wallets are on the rise

As smartphones become more widely used, more people will use digital wallets on their smartphones to make purchases. However, the term is sometimes interchangeable with mobile wallets, but they are somewhat different from each other. Mobile wallets are mobile devices that allow you to store payment information and access a mobile app for transferring money between stores. Examples of mobile payment apps are Amazon Pay, Google Pay, and Apple Pay.

Growth of ACH transactions

A growing number of electronic ACH transactions have taken place as customers increasingly embrace mobile payments over cash. According to analysts, the digital transaction value – a total value of over $13.90 billion – will grow at 12.7% per year through 2026. The consumer expects the convenience of cash with electronic payment methods, whereas merchants enjoy increased cash flows.

Conclusion

The global payment ecosystem is constantly evolving to meet the needs of consumers and retailers. Here are some of the top payment trends you need to know about.

1) The growth of mobile payments: Mobile commerce is growing at an alarming rate, with predictions that it will make up more than half of all eCommerce by 2021. This can be attributed to several factors, including the increasing ubiquity of smartphones and improvements in mobile technology. In addition, many apps and platforms now offer features that make it easy for users to pay with their phones, such as scanning barcodes or using NFC tags.

2) The rise of digital currencies: Bitcoin and other cryptocurrencies have seen a surge in popularity in recent years, thanks to their fast transaction speeds and low fees. While the volatility of these currencies has caused some merchants to shy away from accepting them, several businesses still see the benefits of using digital currencies to attract new customers.

3) The decline in traditional card payments: Credit and debit cards have been around for decades, but they’re starting to lose market share as consumers shift towards alternative payment methods. One reason is that credit cards often come with high-interest rates and fees, which can add up over time. Additionally, many people now prefer the convenience of paying with their phones or other devices rather than reaching for their wallets. 

The global payment ecosystem is constantly changing in response to new technologies and consumer preferences. As a retailer, it’s essential to stay up-to-date on the latest trends to offer your customers the best possible payment options. If you’re looking for help navigating these changes, we can assist you with developing a customized payment solution that meets your unique needs.