A payment ecosystem comprises an economic network with two distinct user groups: buyers on the one hand and sellers on the other hand. There is always a platform or a network that connects these two types of users to allow money to flow from seller to buyer.
A specific payment ecosystem can greatly differ in terms of the number of users, both on the buyer and seller side, and scalability. Adoption of a specific payment ecosytem – represented by a particular payment method (e.g. MasterCard) – depends on the following:
- Reach (sellers need a large customer base, and buyers need to be able to pay with their preferred payment method at a large number of places)
- Conversion / convenience (payment solution should be easy to use, so that consumers easily convert to buying)
- Cost (generally speaking consumers are not willing to pay for the use of a payment method and merchants do not accept payment methods that cost too much or impose too much risk or liabilities)
Ecosystems and schemes
Each of the five payment instruments can have their own local, regional, global or vertical payment ecosystem. Ecosytems are represented by a specific payment 'scheme', which can be described as the institution that sets the rules and technical standards for the execution of payment transactions using one of the underlying payment instruments (card payments, bank transfer payments, direct debit payments, cryptocurrency payments and cash payments). We can identify the Online Banking ePayments schemes (OBeP scheme), the third-party model scheme and fourth-party model scheme.
Online Banking ePayments (OBeP) Scheme
The Online Banking ePayments (OBeP) scheme is a type of payments network, developed by the local or international banking industry – in conjunction with technology providers – designed to facilitate online bank transfers or direct debits.
In an OBeP scheme, the consumer is authenticated in real-time by the consumer's financial institution's online banking infrastructure. The availability of funds is validated in real-time and the consumer’s financial institution provides guarantee of the payment to the merchant in case the payment is made as a credit transfer (push payment): the consumer/buyer initiates the payment. In case the merchant initiates the payment – a debit transfer (pull payment) – the consumer is protected from wrong debits and has the right to reverse the payment depending on scheme regulation and market legislation.
OBeP schemes often allow for direct merchant integration and do guarantee the payment to merchants. Other benefits are the relatively low transaction cost compared to card, wallet or other alternative payments.
Across markets there are several OBeP scheme types to distinguish:
- Mono-Bank OBeP scheme – entails that a seller or Payment Service Provider has a separate connection to each participating financial institution.
- Multi-Bank OBeP scheme – entails that a seller or Payment Service Provider has one single connection to the OBeP network in order to accept payment from any participating financial institution (e.g. the iDEAL scheme in the Netherlands and Bankaxess in Norway)
- Overlay OBeP scheme – similar to the Multi-Bank or Mono-Bank scheme however there is third party (the overlay provider) who sits between the payment network and the consumer. The overlay provider requires the consumer to share their online banking credentials with them in order to have access to the consumer's bank account and to initiate the credit transfer to the merchant. (e.g. SOFORTbanking or SOFORTuberweisung)
Third-party model (closed/exclusive scheme)
A three-party scheme consists of three main parties whereby the issuer – who has the relationship with the cardholder – and the acquirer - who has the relationship with the merchant - is the same entity. The three parties consists of the consumer, the merchant and the scheme. Often the three-party model is a franchise set-up, whereby there is only one franchisee in the market. There is no competition within the brand, however there is competition with other card brands and other alternative payment methods.
Some examples of three-party card schemes: Diners Club International, Discover and American Express. Please note that in the last years these schemes have also partnered with other issuers and acquirers to ensure issuance and acceptance of their card brand. These schemes could be seen as 'premium' card schemes as they tend to have strong cardholder focus and to provide additional privileges for cardholders. Merchants are often charged a relatively high merchant commission rate.
Fourth-party model (open/inclusive scheme)
In a four-party scheme, the issuer – who has the relationship with the cardholder – and the acquirer, who has the relationship with the merchant, are different entities. The four parties consists of the consumer, the merchant, the issuer and the acquirer. These four-party schemes are referred to as 'open schemes' as they allow banks and financial institutions to join, to start issuing their cards and/or to acquire merchants for card acceptance. In principle there is no limitation to who may join the scheme, as long as the scheme requirements are met. Some examples of a three-party card scheme: MasterCard, Visa, Maestro, UnionPay, JCB and RuPay (India). A diagram of a 4 party scheme can be viewed here.