Payments Four Party Model became over the time a “n” party model

The battle for the customer ownership is open

The Four Party Payment Scheme includes (highlighted in the payment model graphic above)

  1. Cardholder/Consumer, is the end-user who initiates the payment with the merchant
  2. Merchant, is the customer of the payment value chain, as they are interested in receiving payments from the cardholder
  3. Issuer (Bank), issuer is the financial institution that issues cards to customers and provides them with credit or debit accounts
  4. Acquirer, is the bank or financial institution that provides merchants with the means to accept card payments

It is globally used in nearly all standard card payment systems. In the traditional model the Merchant has a strong relationship with the Acquirer, who enables him to accept Card Payments (via a payment terminal at the POS or Online).

But with the rising complexity of the payment network – see above– more technology and players transited to a crucial role for the merchant’s business success:

  • Orchestrator integrates & manages several different payment service providers, security, acquirers and banks on a single platform
  • Independent Sales Organisation (ISOs) works with acquiring banks to find, open, and manage merchant accounts on behalf of businesses to accept credit cards. ISOs are responsible for signing up merchants and providing them with the necessary equipment, software, and services to process payments and accept credit card payments
  • Payment Service Provider (PSP) assists businesses to accept electronic payments, such as credit cards and debit cards, i.e. Stripe, Square & Toast
  • Payment facilitator Submits sales transactions of a group of identified sub-merchants for processing through its own merchant account (MID). They need to be able to handle authorization, settlement, and reconciliation, onboarding, risk management and fraud prevention.
  • Aggregator, (also known as a merchant aggregator) is a third-party service provider that allows merchants to accept payments from customers via multiple payment methods
  • APM (NOT a major international credit card brand) for accepting foreign local schemes like Alipay, Girocard or Ideal

On the POS side the ECR (Electronic Cash Register) and ISV (Independent Software Vendors) provide payments with integrated omnichannel solutions.During the pandemic nearly all merchants became omnichannel implementing their own solution, mostly in the form of a mobile application. Let’s look for an example in the restaurant vertical.

The 2022 edition of the PYMNTS Restaurant Readiness Index found that nevertheless lockdowns had been lifted and in-person dining had returned, 31% of restaurants surveyed generated 50% or more of their total sales through digital channels and over 50% of restaurants implemented digital features that supplement the on-site ordering experience. These digital solutions are provided by ResTech firms such as the German allO, the Spanish startup CoverManager or the Danish FiftyTwo which enables merchants to integrate functions such as reservations, online ordering, payments, and shift management. In our next article we will further elaborate on the ResTech market in Europe. The merchant the old cash register converted to a super powerful ERP system is vital for operations and no merchant will change the acquirer risking a seamless integration into his customer friendly omnichannel ECR solution.

So what is a successful strategy to keep a close direct merchant connection as acquirer?

A successful strategy to keep a direct merchant connection as an acquirer is to

  • focus on customer service and provide value-added services
  • provide merchants with a comprehensive suite of easy-to-use services, such as digital onboarding, risk management, automatic reconciliation and fraud prevention
  • leverage data and create more personalized experiences for merchants and provide valuable insights into their customers
  • provide merchants with competitive advantages, such as lower fees, higher acceptance rates, and faster payouts
  • European / Global partner strategy. Actively manage and deeply integrate your partners (especially ECR/VAS provider)

Two main questions are open:

  1. Which partner model should you offer to collaborate with other payment providers & software/technology companies?
  2. Who owns the Card holder / consumer?

To answer these questions, dedicated further articles will follow – stay connected with us

Written by Markus Melching