The Card Payments Value Chain Analysed (Part I)

On first inspection, the card payments industry appears to be a mismatch of service providers covering similar functions. However, each firm has an important role in the card payment process. From customer sales to transaction bookings, a breakdown of the card payments value chain is overdue.

Locking Down the Customer

The crucial first step in the card payments value chain is customer solicitation. Traditionally this process was exclusively handled by banks but has recently shifted to a diversified field of client acquisition parties. Customer solicitation involves a diverse range of tasks, such as developing a product offering, marketing and sales.

Once a customer is committed to a card issuer’s proposition, the issuer completes its regulatory-driven onboarding obligations. This involves “Know Your Customer” (KYC) risk checks and sanction screenings. Upon completion of the onboarding process, the customer and issuer enter a contract. 

Issuing Cards 

Before the customer can make any payment, they must have a card. Earlier, this was a more straightforward concept: a plastic or metal physical card was produced. Nowadays, physical card production is accompanied by token creation to enable the virtual cards you see in GooglePay or ApplePay, or even directly from your bank. 

To issue cards, the issuer must hold a licence from a card scheme, which allows the issuer to participate in the network and use their branding. The licences come with a list of rules and regulations that the issuer must comply with to maintain the licence (known as scheme compliance). 

Issued with a card or a token, the customer can now make payments.

Enabling the Payment

To make a payment, there are two messages sent from the merchant’s acquirer via the scheme to the issuer: first, an authorisation message and then a clearing message. 

When the payment has been initiated (the merchant has sent a real-time message - i.e. authorisation message), a risk management process is triggered, which often depends on the issuer’s payment products (whether it’s a debit, prepaid, or credit card). This process is mostly focused on fraud prevention through transaction history analysis and other checks (e.g., checking the customer’s credit line for credit cards). If all checks are passed, then the payment is successful. 

However, the actual money movement happens only after the issuer receives the transaction details file from the merchant (i.e. clearing message). The issuer then associates them with the cardholder's account through an automated process. This is where a core banking system is used to link the transaction to the cardholder account and initiate the billing process towards the cardholder.

Customer Service

In case the customer has trouble with making payments or has questions regarding their accounts or bill, they can contact customer service. The issuer facilitates any questions from the customer through its customer service, which is usually handled by call centres or chatbots. Customer service has recently become its own step in the value chain with chatbot solutions to enable a self-service model, reducing call centre costs. 

In the next blog, we will explore how card issuers can optimise their card payments value chain with modern technologies.