Relationships are Complicated: Part One

At Pagos, we not only love to share about our suite of microservices and how they can help you manage your payment’s business better, but we also want to be a source of payments knowledge for the payments community. In this spirit of education, welcome to part one of a two-part series on the complexity of the various relationships and partnerships in payments. We’ll start with the “why” and “what” of partnerships—why do we need them and what types are there.

Partnerships within the payments ecosystem are complex and necessary business relationships. Just as any business partnership, payments partnerships develop out of a business’ strategic needs and can include:

• Gaining access to new markets and channels

• Achieving a competitive advantage

• Providing future strategic business options

• Reducing risk

• Accessing new technological innovation

When considering your company’s place in the payment lifecycle, you’ll have two types of relationships: direct—those with whom you have first party contact—and indirect —those that would be considered third party contacts, and on whom you have dependencies in the lifecycle. An example of direct would be the processor and the merchant, where the processor provides access to new technical innovation. Indirect would be most merchants and card brands (with the exception of some large enterprises businesses who may have a direct relationship), as there's typically no direct exchange between these two key players, but the card brands provide the frameworks for processing credit cards, thereby potentially enabling the merchant to gain access to new markets.

Relationship Management Principles

Now that we have reviewed the “why” and “what” of partnerships, let’s tackle the “how.” There are eight key principles that we use for managing relationships: 

• Communication

• Performance

• Defined expectations

• Mutual benefit

• Trust 

• Dispute resolution

• Collaboration

• Values

When thinking of direct relationships, you’d likely look to engage all of these principles in your building and managing of a partnership. Of critical importance to us is communication. You must have open communication in both directions of a partnership for it to be successful. 

As you review the other seven principles, you'll find that communication is a critical component and often a precursor in all of them. That's why communication of your partnership principles should be one of the first things you discuss when starting a new partnership or stepping into an existing one. Managing to these principles or those that you chose for yourself and your business takes effort, but success is the result in the majority of situations.

Relationships Throughout the Card Payment Lifecycle

To define the “who” of partnerships, we’ll introduce an expanded card payment lifecycle, which includes a handful of new partners and why they’re considered key players.

Looking back at the original card payment lifecycle, we’re reminded of several players in this ecosystem:

• Issuing bank

• Cardholder

• Merchant

• Processor

• Card brand(s)

• Government/Regulator

In our product, we use the term “processor” to refer to any payment gateway, acquiring bank, payment processor, or payment service provider that’s certified to perform the role of managing and mediating the card transaction process. Let’s take a deeper dive into these key players individually to further clarify their roles and importance in the expanded ecosystem:

• Acquiring Bank - A bank or financial institution, licensed as a member of a card brand, that creates and maintains merchant accounts. Acquiring banks also take the risk and responsibility for processed transactions, such as any liability for credit risk in the event of merchant insolvency, chargebacks, card brand assessed fines, and penalties. These banks are also commonly referred to as acquirers or merchant banks. 

• Payment orchestrator - These providers supports a single platform that integrates and manages the whole authorization process from beginning to end, including the payment or refund authorization, transaction routing, and the settlement request. They generally connect to many different payment service providers, acquirers and other ancillary services such as fraud and chargeback management and network token and 3DS services. A payment orchestrator is sometimes referred to as a gateway.

• Payment aggregator - A third party responsible for managing and processing merchants' online transactions under its own merchant identification number (MID). A payment aggregator allows merchants to accept a diverse range of payment options without a lengthy acquiring process and merchant/bank account setup, whether payment is by credit card, debit card, e-wallet, or bank transfer. This model is sometimes referred to as a ‘master merchant model’.  Payment facilitators are also considered payment aggregators.

• Payment service provider (PSP) - Third-party organizations that act as a full-service solution for merchants to accept and process online payments. PSPs provide merchants with a payment gateway, as well as a broad offering of other services including multi-currency payment processing, acquiring, risk management, settlement and reconciliation, and chargeback management. Examples include Braintree, Stripe, and Adyen.

Next we’ll look at those key players that must be a “member” with the various card brands through some form of registration process. In some cases, an existing member of the card brand must sponsor these players: 

• Issuer processor

• Acquirer processor

• Card brand registered service providers

Of importance and often overlooked, the issuer and acquirer processors carry an important role in the card payment lifecycle; they’re actually the technology behind the operation. Issuer and acquirer processors securely analyze and route transaction data among all pertinent key players, from authorization to settlement (including chargebacks), on behalf of the issuer or acquirer. One thing to note is that an issuer or acquirer can also be their own processor. 

Card brand registered service providers (also referred to as member sponsored service providers) provision services for merchants to use in conjunction with their payment processing. Examples include payment facilitators and independent sales organizations (ISOs) who provide such services as dynamic currency conversion, network tokenization, account update, and 3D secure services.

It’s important to note that if appropriately certified as per the relevant regulatory requirements, any of the above key players could perform the services of one or more of the other players.

Here's an update to the lifecycle including all these new key players:

Exploring Your Own Relationships

With this additional context on the key players and principles in payments relationships, it’s now important for you to sit down and look at your place in the lifecycle. Which partners are direct? Which are indirect? What principles should you apply to each of those relationships? How can you utilize the principles when building brand new ones? 

Relationships won’t grow on their own, they must be incubated. Give them attention, embrace the principles, and most importantly, communicate. In the absence of cultivating the relationship, you risk staying relevant to your partners; that lack of attention can result in lost revenue. 

Your business’ performance can be a key indicator of the state of your partnerships. Evaluate your approval rates, your chargeback rates, your costs. Our tools, such as Peacock and Canary can help you to understand your performance.

Learn more about these products and how they can benefit your business at Pagos.ai or in the Pagos Product Documentation. Contact us if you have any questions!

We've provided the content in this blog post solely to inform and educate. Pagos doesn't provide legal advice and this content shouldn't be taken as such. You're strongly encouraged to consult with your payments partners and legal teams before implementing any changes based on the content in this post.