ABSTRACT
This chapter covers the economics of card payments, including infrastructure and operational costs, and it explains the ecosystem actors’ roles, the risks they face, and the rewards they can obtain. From marketing to underwriting, the supply of card payments facilities to acquirer processing, switching to issuing, this chapter will show the reader every step of the value chain, each with a clear definition, critical success factors, activities, and stakeholders involved. Apart from the main actors (i.e. acquirer, issuer, and card scheme), it also introduces ISOs and Payfacs, and debunks terminology (e.g. MID, MCC). Building on these concepts, the reader will grasp why understanding a merchant’s profile and needs is necessary for determining what payment service is best and why one size doesn’t fit all. Each model is clearly explained, highlighting the responsibilities of each stakeholder and following the “value vs cost” principle. This chapter also explains how cardholders interact and how this interaction has evolved over the years, introduces more complex concepts (e.g. recurring transactions), and looks at the risks and liabilities associated with each channel (e.g. liability shift) and how this area is evolving. Concepts such as merchant service charge, interchange, and card scheme fees, and pricing models such as Interchange +, Interchange ++, and Blended will be covered, as well as interchange fee regulations and the options for the right to participate in card scheme networks. It also highlights, with real-life examples and references, how the concept of digital identity is fundamental to any payment ecosystem.
