AT A GLANCE: THE PAYMENT ECOSYSTEM 1
AT A GLANCE:
THE PAYMENT
ECOSYSTEM
“Payment ecosystems” is a term that
typically evokes complexity and confusion
among novices and professionals alike.
Terminology, networks, and regulations are
some of the factors that create and foster
this less than positive perception.
The reality is that payment ecosystems are relatively similar to a well-oiled machine with many moving parts that rely on each other to operate efficiently. At its core, the ecosystem consists of a network of participants who communicate financial information across one another. The primary problem is that they don’t all speak
the same language and often have unique rules, which can add to the complexity. For merchants, this added distraction can hinder you from staying focused on your core business and force you to spend time and resources trying to understand (or troubleshoot) the intricacies of these relationships rather than staying focused on your core business force.
Consider credit card processing for example. While there is a general rule for how the process works, there are plenty of variations in addition to differing roles of participants in the same flow. Let’s take a look at the payment ecosystem for a subscription business – most of which takes place in a matter of seconds or minutes.
AT A GLANCE: THE PAYMENT ECOSYSTEM 2 Customer makes an online purchase Merchant receives the order info and uses Recurly to manage subscription billing
Recurly
stores the credit card information securely and passes the payment request to the gateway Gateway securely packages and sends the request to the processor Processor sends the information to the proper card association
Association
will route the request to the proper issuer through its network Issuer approves (or denies) the transaction and returns the response back to the network Customer is billed by the issuer on their monthly statement
Processing
a Credit Card
1.
Customer
makes an online purchase
The entire process begins with the customer, who makes an online purchase by entering credit card information into an e-commerce site. Besides the credit card number, billing information can be entered as well.
2.
Merchant
receives the order info and uses
Recurly to manage subscription billing
For businesses with a recurring payments model (e.g. monthly subscriptions), the customer’s credit card information is sent directly to the billing partner (e.g. Recurly), and not the merchant, reducing the merchant’s PCI liability.
AT A GLANCE: THE PAYMENT ECOSYSTEM 4
4.
Gateway
securely packages and sends the
request to the processor
The payment gateway normalizes credit card data and then securely transfers information to the payment processor or acquiring bank. Acquirers need a payment processor to provide all of the software and systems in order to connect with the card associations and securely complete transactions.
3.
Recurly
stores the credit card information
securely and passes the payment request to
the gateway
Recurly (e.g. billing partner) bridges the gap between your business (user accounts, product plans) and payment processing (card validation, securing financial data, invoicing, reporting). Recurly also provides services such as integration, gateway setup, PCI compliance, account management, invoice generation, user notifications, reporting, upgrades/ downgrades, and data portability.
Next, the payment is routed to the optimal payment gateway based on a variety of transaction types.
6.
Association
routes the request to the proper
issuer through its network
(e.g. American Express, MasterCard, Visa)
The payment brand sends your request to the card issuer (the card issuer is the bank that issued the card to the customer). Issuing banks pay acquiring banks for purchases that their cardholders make.
5.
Processor
sends the information to the proper
card association
While these associations aren’t banks or issuers of credit cards or merchant accounts, they provide the network between banks to facilitate payments of a specific brand. They also function as a governing body of a community of financial institutions to support credit card processing and electronic payments.
AT A GLANCE: THE PAYMENT ECOSYSTEM 6
8.
Customer
is billed by the issuer on their
monthly statement
At the end of the billing period, the customer is charged by the issuer with the amount appearing on the monthly statement.
The funding and settlement process when money is deposited into a merchant’s account for processed transactions can take up to two business days.
7.
Issuer
approves (or denies) the transaction
and returns the response back to the network
Whether the issuer approves or declines the transaction, the response is sent to the payment brand. If approved, the issuer posts the transaction to the customer’s account, and the merchant provisions the item or service to the customer.
Understanding Your Business Needs
Companies should evaluate and choose the right billing partner. A good place to start is to find a partner who understands both payments and technology relevant to your company. Billing partners generally sit above payment gateways to bridge the gap between your business (user accounts, product plans) and payment processing (credit card validation, financial data accessibility, invoicing, reporting). Not all are created equal in terms of features and support, so having a clear understanding about specific business needs and requirements is a must.
^ Learn more at Recurly.com
ABOUT RECURLY
Recurly provides enterprise-class recurring billing management for thousands of subscription-based businesses worldwide. Contact our team today to see if Recurly is the right fit for your business.
+1.844.732.8759 [email protected]
