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Group - 2

Transaction Clearing System and
Market Analysis
Aditya Sood
Harsh Bhardwaj
Kriti Arora
Lokesh Raisinghani
Shantanu
Shiwangi
Vishwesh Prabhu Dessai
Section - A
TRANSACTION CLEARING SYSTEM
Process of settling of payments between card issuing bank and the bank of merchants
32.90%
19.40%
47.70%
Visa
Mastercard
Others
Types
Closed Loop Payment
Network
Open Loop Payment
Network
Market share in card payments
Issue cards
themselves and
facilitate the
settlement
Do not issue cards,
only facilitate
settlement of
transaction
• Visa and MasterCard belong to the Open
Loop Payment Network
Visa and MasterCard Payment Values
TRANSACTION CLEARING PROCESS
1
•Cardholder presents the card to the merchant for payment
2
•Payment request is forwarded to the acquirer
3
•Acquirer contacts the issuer through the VISA network
4
•Issuer shares information about balance in cardholders
network
5
•The information is routed to the merchant
6
•In case of sufficient balance the payment is accepted
7
•At the end of month cardholder pays the bills to the issuer
•One who uses the card to make payment
Cardholder
•Entity to whom the payment is made
Merchant
•Bank in which the customer has an account and
which has issued the card to the cardholder
Issuer
•The merchant’s bank
Acquirer
Sequential Steps
BUSINESS MODEL
Business
Model
- Financial Institutions (Issuers and Acquirers)
- Cardholders
- Merchants
- Personnel
- Network and Communications
- Brand Promotion
- Legal Provisions
- Creates value for all stakeholders
- Cardholders get convenience, security and loyalty rewards
- Merchants benefit from improved sales by offering payment method options
- Banks get new revenue streams like card fees, late payment interest
- Multiple revenue streams
- Service revenues from bank for their participation in card programs
- Data processing revenues for transaction processing
- International revenue when cardholder issuer country is different from the merchant’s country.
COMPETITOR ANALYSIS
TECHNOLOGIES DISRUPTIONS IN THE PAYMENT LANDSCAPE
SmartPhones
Tablets
QR codes
New Business
Models
Cloud computing
Bluetooth
technology
 The payments industry is in the early stages of unprecedented innovation and transformation.
 In addition, payment preferences have evolved rapidly, as many consumers have switched to electronic
payments in lieu of cheques and now are saying goodbye to cash in favor of plastic cards.
 This fast-changing card landscape has provided the opportunity for alternative payment providers to find
a point of entry. Technology has leveled the playing field for non-traditional payment providers and led to
their starring role as a payment disruptor



NFC Driven Mobile
Payments
 Near Field Communications,
works by establishing a radio
communication between the
two devices once they are
within a few inches of one
another.
 NFC builds upon the RFID
system by allowing two-way
communication between two
NFC-enabled devices
QR – code based payment
applications
 In a QR code driven system,
a mobile application
generates a QR code, which
the merchant can scan via a
mobile device to process the
payment
 The unique code displayed
within the app then links the
credit/debit card account the
consumer has on file within
the app
 Example : Starbucks
Plug-in devices to POS
terminals
 Plug-in payment devices
turn mobile devices into card
accepting terminals. The
small device, dongle plugs
into the headphone jack
allowing merchants to
accept payments.
 The alternative payment
provider charges the
merchant a fee for the
service
CARD OPERATORS
Apart from the traditional clearing systems, card
operators are also making advances in online
payments providing NFC driven mobile
payments, open source platforms and mobile
wallets . Example: Visa
VALUE ADDED SERVICE PROVIDERS
Disruptive players in online and mobile
payments provide wide ranging product
offering ranging from plug-in devices to in-
store payment. Example : PayPal
MOBILE PHONE NETWORKS
Direct connection to the operator billing platform,
which in turn provides an alternative checkout
system where a consumer provides a phone
number to make a purchase. Example : T-MobileIsis
RETAILERS
UK-based supermarkets have
entered the consumer finance
space with commercial banking and
payment offerings. Example: Wal-
Mart
MOBILE APP PLATFORMS
The rise of innovative mobile apps have
forced the introduction of mobile payment
apps. Example: Android Google
BANKS/CARD ISSUERS
In lieu of the advent of technology, banks are
developing in-house app stores to create
mobile applications for open platforms for
further innovating the payments landscape
Example : Deutsche Bank
SEVERAL PLAYERS ARE TRYING TO GAIN A SEAT AT THE PAYMENTS TABLE
MasterCard
PayPass
MasterPass
MasterPass API
and SDK :
Developer Zone
Visa
PayWave
V.Me
Visa API and SDK
: Visa Ready
Partner Program
THE RACE TO CAPTURE ONLINE PAYMENTS
Initially both networks developed the contactless technology to accept their cards with
Visa’s PayWave and MasterCard’s PayPass. This was a foundation setting technology
Next digital wallets were released to cature digital payments with Visa’s V.Me and
MasterCard’s MasterPass
The most recent move by the networks was to facilitate their platform adoption
through developer tools with Visa Ready Partner Program and MasterCard’s API
MasterCard Ready
This allows merchants and mobile payment developers tools to increase the
ease of acceptance
Through these platforms, financial institutions are also able to develop their own
mobile wallets with networks’ technology
This approach has a much greater likelihood of success given it facilitates collaboration and
communication of all stakeholders involved in the process.
THREAT OF MOBILE PAYMENT SYSTEMS

AT&T, Verizon Wireless and T-Mobile are reportedly partnering with Discover Financial Services and Barclays PLC, a global retail banking company, to
challenge the status quo.

These new partners want to allow consumers to complete purchases with a simple wave of their smartphones. Technology observers are calling this
one of the most significant challenges to credit card companies to date.


R
F
I
D

E
m
b
e
d
d
i
n
g

The RFID would act as a
radio version of the
magnetic strip on your
credit card.
S
w
i
p
e

Y
o
u
r

P
h
o
n
e

The Phone's screen acts
as a super-secure
numeric pad for
accessing your PIN
R
e
t
a
i
l
e
r

C
o
m
m
u
n
i
c
a
t
e
s

Retailers can send data
back to your phone, in
the form of adverts or
loyalty card-like reward
points.
THREATS AND OPPORTUNITIES
THREAT OF BITCOIN
Bitcoin, introduced in 2008 by a programmer or group of
programmers under the name Satoshi Nakamoto, has no
central issuing authority and uses a public ledger to verify
transactions that are authenticated by
cryptographic signatures.
Authorities in Russia, China and Israel have sought to restrict
bitcoin, while the U.S. seeks ways to prevent money-
laundering and illicit sales without killing the digital currency.
The threat of regulation and disruptions, including hacker
attacks on online exchanges, have caused bitcoin value
to plummet.
Therefore, Visa and MasterCard are not to worried about
bitcoin emerging as a major competitor.
EMERGING MARKETS
OPPORTUNITY
Globally, 85% of payments are still made with cash.
Consumer spending will drive growth for Visa in the
developed world, but the potential for much greater growth
exists in the developing world as people switch from cash to
card and mobile payments.
To move into this new field, Visa has acquired a South African
company, Fundamo, for $110 million. Fundamo specializes in
providing financial service offerings to mobile phone
operators in developing countries, and with its base in Africa,
it understands regional means of business
PREPAID CARDS OPPORTUNITY
The use of prepaid cards is increasing rapidly as consumers fear using debt
following the recession. Annually, the amount of money put onto prepaid
cards is increasing by 42%, and Visa is a strong player in the market
Visa is using Fundamo’s technology to introduce prepaid cards to
developing markets where Visa’s product may be seen as more safe and
reliable than cash
Prepaid cards are not purely issued through banks, so Visa can avoid some of
the increasingly aggressive negotiating process and keep fees higher
FUTURE OF TRANSACTION CLEARING SYSTEM
 Near field communication: A cloud payment system where a user can do transactions using a smartphone.
NFC mobile contactless payments can be made at both attended POS locations (such as stores) and unattended
locations (such as vending machines) that use the existing merchant payments infrastructure. To pay, the
consumer simply brings the phone to within a few inches of a contactless payment-capable POS system and the
transaction occurs

 Bit coin: Transaction is done through virtual currency. Payments work peer-to-peer without a central repository
and transfers value between Bit coin wallets. It can be installed in a PC or mobile to perform transactions

 E-wallet: E-Wallet provides the ability to store multiple credit cards, debit cards and back account information
in a secure environment for making faster payments. You can create up to ten separate profiles for both credit
and debit cards, and up to ten separate profiles for checking and savings accounts. You can edit and delete these
profiles as needed. Using E-wallet, a user can send/receive money anytime to his e-wallet using phone numbers

 RuPay: A payment gateway launched in India, which will work on ATMs/merchant outlets and help in reducing
cash transactions. A variant of pre-paid RuPay card would shortly be launched by IRCTC, which will help in
booking railway tickets

References
 http://www.portal.euromonitor.com/Portal/Handlers/accessPDF.ashx/Alternative_Payment_Provi
ders_Starring_as_Payment_Disruptors.pdf
 http://www.euromonitor.com/mastercard-international-inc-in-consumer-finance/report
 http://www.livemint.com/Money/tz1Pjm3WnRJvcfrisif66L/Indias-own-payment-gateway-RuPay-
launched.html
 http://www.pcadvisor.co.uk/how-to/mobile-phone/3472879/what-is-nfc-how-nfc-works-what-it-
does/
Thank You