Overview of Traditional Payment Value Chains
CashCredit /Debit CardsChecksOnline P2PPaymentsMobilePayments
•Accept cashPay cash
•Accept payments using cardreaders that are connectedto merchant acquirersManage consumeraccounts and assumeassociated credit risk Typically outsource back-office processingPay issuers and manageaccounts (via statementsor online access)•Hold merchant accounts•Manage transaction info& merchant payment•Typically outsourcetransaction processing•Connect and switchtransactions betweenmerchants & issuing banks•••••••••Expand network andpromote brand awareness
•Accept checks and verifyconsumers’ identity andaccount informationMonitor theirchecking accountsHold consumer accountsand issue checksNot responsible forfraudulent checksOutsource check printing•Hold merchant accounts•Collect & process checks(verification and guarantee)•Clear checks & collect funds
•Accept payments usingM-payment readers orexisting POS devicesconnected to merchantacquirers Authorize payments andmanage wireless bills/creditcard bills/m-paymentaccounts & M-walletPay bills and rechargeM-walletMonitor their accountsvia mobile phones•Hold merchant accounts•Manage transaction info& merchant payment••••Connect and switchtransactions (either throughown network or existingpayment networks)
••One entity performs acquiring, issuing & processing (network function)•Transaction is identical to transferring funds between two accounts in a same bank •User accounts are typically linked to member credit cards or bank accounts•Service provider encourages users to maintain balances on their accounts by giving interest(via money market accounts)•Selling party must belong tothe same payment network as the paying party toreceive fundsTransfer funds betweenother accounts to theservice provider
Issuers AcquirersMerchants Payment Networks
Sources: Federal Reserve Bank of Philadelphia, 2006; IDC survey, 2006; eMarketer, 2006; Nilson Report, 2005; IMF, 2005; Diamond analysis.
Vending, parking, coin-operated machines, quick-servicerestaurants, and transit account for $160 billion.
Excludes P2P payments, catalog sales, infomercial sales,telesales or bill payments.
About 9% of US online shopping used peer-to-peer service,such as PayPal, to make payments, and nearly 95% ofonline P2P were generated by auction-related payments.
Total US remittance outflow (personal transfers from theUS to other countries) in 2005.
U.S. Payments Market Segmentation and Sizing
Credit/Debit Cards,Cash, Checks
= $176.4 billion+Online P2P
= $16.0 billion+Int’l fund transfers
= $43.5 billion$235.9 billionPayments over $5 in physical locations= $5.0 trillion
Payments under $5 in physical locations= $1.2 trillion
Wireless content & app. download= $2.0 billion
Credit/Debit Cards,P2P Payments
Direct Wireless Billing