Payment Processing Basics

As open banking #payments are gradually becoming an integral part of the payments mix across the globe, their comparison with credit cards is inevitable. Can they really replace or displace them? Let’s take a look. On the one hand side, we have the traditional 4-party model, dominated by Visa and Mastercard who manage the rails that connect banks with customers. A typical transaction flow would look like this: 1. A third-party (merchant) gateway identifies the right payment network 2. The (card) network confirms the customer authorization 3. The network routes the transaction to the customer’s bank (the issuer) for approval 4. The network does the same with the merchant’s bank (the acquirer) 5. After the approvals the gateway confirms the transaction 6. The merchant’s bank settles with the network, whereas payment is done by the customer’s bank For this middleman role, card networks define access fees (the costs for routing a card payment through their network) and interchange fees that merchants pay to the card issuers. The latter can range from 0.3% for credit cards in Europe (there is a cap) and all the way up to 3.5% in the US and Canada (the most expensive in the world). On the other hand, open #banking is a game changer because it connects merchants with consumers in a direct way, without intermediaries: payments are initiated directly from the consumer’s bank account. The process looks like this: 1. The customer chooses ‘Pay by bank’ at checkout and selects the bank 2. The transaction is redirected to the customer’s banking app 3. The transaction is approved, and the merchant is notified Three arguments speak in favour of open banking payments: —  Not only are PIS (payment initiation) transactions a fraction of the card costs, but also, they offer increased security, enhanced user experience and instant completion (as instant schemes around the globe proliferate). —  Due to higher competition and decreasing margins merchants have a stronger than ever incentive for cheaper ways of accepting payments and transferring funds. —  Whereas the vast majority of modern #fintech offerings are built on existing infrastructure – having benefited from the decoupling of the front-end from legacy systems – open banking is powering for the first time in a long period the build-up of a real, additional infrastructure layer that has the potential to influence the entire finance set-up in the years to come.   Does that mean that #openbanking will replace credit cards? So far it hasn’t happened, and it will most probably be a gradual adjustment where open banking will co-exist alongside with credit cards in a new and more complex multi-polar payments landscape.   Opinions: my own, Graphic source: Huntswood

#Africa bleeds $5B a year not to #corruption or #mismanagement, but just to move money within its own borders. Example: A Kenyan business paying a Ugandan supplier. Instead of Nairobi → Kampala, money goes: Nairobi → USD conversion (1–2%). USD routed via New York/London ($20–50 fee). USD → Ugandan shillings (another 1–2%). By the time a $26,000 invoice is paid, $500–1,000 is gone. Whilst we may be denied visas, our money travels freely through New York. And it’s not just trade: Africa’s #diaspora sends $95B home each year, yet pays the world’s highest remittance costs. -We pay the highest cost for credit. -We pay the highest cost for payments. -We pay the highest cost to send our own money home. It’s not inefficiency. It’s design. The #GlobalFinancialSystem wasn’t built for us. The good news? Solutions exist. #PAPSS (Pan-African Payment and Settlement System) is already live linking 15 central banks, 150 commercial banks, and 14 payment switches, with the capacity to handle $300B in intra-African trade annually. Through PAPSS, that same Kenya–Uganda  transaction could  look very different: -One direct conversion from KES → UGX (0.2–0.5% spread). -Settlement netted via African central banks. -Funds received in hours, not days. Estimated cost: $60–150.  Potential savings: $500–950 on a single $26,000 payment. No detours. Value stays in Africa. The challenge isn’t invention. It’s implementation. One Africa. One market. One #payment system. AI image below*

The European Commission has put forward proposals on the future of EU #payments by modernizing the PSD2 legislation into PSD3👇   A series of developments have triggered the need for changes:   🔸 The spectacular growth of electronic payments in the EU (30% in the 4 years until 2021 to 240€ trillion in value)   🔸New #Fintech players entering the market or taking significant space (i.e. kevin., Satispay, Nuvei…)   🔸Open Banking (account information and payment initiation) opening up new use cases   🔸Innovation - Instant payments (SEPA), contactless (Tap to Pay by Apple + others) and QR codes taking a central stage   🔸PSD2 inefficiencies   The proposals can be summarized into 6 main blocks:   1️⃣ Open Banking improvements: 👉 New requirements for dedicated data access interfaces 👉 Banks will no longer need to maintain two data access interfaces 👉 Open banking providers to be given contingency #data access 👉 All providers (banks and PSPs) to set up a “dashboard” for consumers to view, control (and be able to revoke) data access rights 👉 Obligation to provide access to financial data beyond payment account data   2️⃣ Fraud mitigation: 👉 Extend refund rights for fraud victims 👉 New mandatory system to match IBAN numbers with account names 👉 Stronger customer authentication rules 👉 A legal basis for PSPs to share fraud-related information between them   3️⃣ Fairer competition between banks and the 1000+ non-bank PSPs to drive down prices: 👉 Allow PSPs to access all EU payment systems 👉 Secure payment and e-money institutions’ (there are 800 and 270 respectively) access to a bank account   4️⃣ Simplification: 👉 Merging e-money institutions (EMIs) with payment institutions (PIs) under one regime 👉 All payment rules applicable to PSPs will be contained in a directly applicable regulation   5️⃣ Improve the availability of cash in shops and via ATMs, by allowing retailers to provide cash services to customers without requiring a purchase and clarifying the rules for independent ATM operators   6️⃣ Improve consumer rights (i.e. when funds are blocked, improve transparency on account statements and ATM charges)   It’s important to note that on top of PSD3 the above will be implemented by a Payment Services Regulation (PSR). The difference is that the former (#PSD3) needs to be transposed into the national laws of all EU Member States, whereas the latter (PSR) is an EU Regulation, which will apply directly across all member states.   The PSR will regulate both Open Banking and PSPs, with the intention to create a more coherent, single legal framework across the EU that will, in turn, reduce the fragmentation coming from national legislations 🔥 ----- Hit the 🔔 on my LinkedIn to stay updated: — Don't be shy, comment! — Sharing is caring, right? — PM for any inquiry ✍️ Sign up to The Payments Brews ☕️: https://lnkd.in/g5cDhnjC 📥 Follow Connecting the dots in payments... #payments #fintech #globalpayments #technology

Last week, I delved into how banks earn fees within the Open Banking Value Chain in the UK and Europe. Specifically through their involvement in the "acquiring" activities of PISPs receiving payments. Nonetheless, the ongoing industry discourse has focused on "issuing". The key question is: Should banks providing consumer bank accounts receive compensation for offering future Open Banking functionality? The European Payments Council (EPC) and SEPA Payment Account Access (SPAA) Scheme have established default fees for "premium" services. These services are not included in #PSD2 or anticipated in #PSD3. Therefore, banks participating in the scheme are entitled to fees for use by Open Banking providers. (It's important to note that the SPAA jargon, including terms like "asset holders" and "asset brokers," may seem complex. I'll avoid them in the explanation below, but you may encounter these terms in SPAA materials.) The default fees (image attached) are a first "Line-in-the-sand". They are not set in stone and may evolve as the scheme progresses. There is also flexibility for bilateral agreements between banks and Open Banking providers to reduce these fees. Some noteworthy services include: 1. Dynamic Future Dated/Recurring Payments: € 0.0165 (0.05% on a €35 payment) A similar solution to Variable Recurring Payments API in the UK. 2. Payment to multiple counterparties: € 0.0214 (0.06% on a €35 payment) This could support marketplace solutions without marketplaces needing to hold seller funds 3. Payment Certainty Mechanism: € 0.0363 (0.10% on a €35 payment) Minimises the risk of a payment being blocked by a bank post-SCA 4. Request payment with transaction fees not borne by the Payer: € 0.0299 (0.09% on a €35 payment) This mitigates instances where customers face a charge for using Open Banking payments. This concern should diminish with the regulation of instant payments in Europe. However, it's crucial to remember that participation in this scheme is *voluntary* for banks. Given the relative monopoly large banks hold over their customers and the low switching rates, the absence of a major bank's involvement could undermine the viability of the product. This holds especially true as merchants typically require a new solution (e.g. Dynamic Recurring Payments) to be available to a substantial majority of their potential customers. The concentration of the European Banking Sector accentuates this risk. If one or two large banks decide not to participate it could significantly impact the feasibility of these solutions for merchants. Overall, there has been progress towards banks being compensated for their role in “issuing” as well as “acquiring”. Nonetheless, regulators should consider: 1. Will it succeed without a push for all to offer the solutions? 2. Do merchants benefit from banks earning two fees from each payment? As always feel free to comment and challenge below! Open Banking Trustly #OpenBanking #OpenFinance #SPAA #Fintech

In 2021 European payments startups pulled in $10B in funding. But by 2023, rising interest rates, regulatory challenges, and a broader fintech funding slump hit the sector hard. Annual VC funding in the sector since has struggled to break the $2B mark, and once high flying players have faced valuation drops and profitability struggles. However, there are signs of resurgence. The anticipated Klarna IPO could be a key test of investor confidence in the space. Meanwhile, niche areas like stablecoins and B2B payments are generating fresh excitement. What are the key drivers for this resurgence?👇 🔹 Regulation is Reshaping the Industry Payment startups continue to navigate new regulatory pressures, from UK consumer duty reforms to the European Payment Initiative’s launch of Wero, a government backed solution enabling instant payments. 🔹 Crypto Payments Gain Traction Stablecoins are proving to be more than just a crypto buzzword. Stripe’s $1B acquisition of stablecoin startup Bridge and MoonPay’s acquisition of Helio highlight how digital assets are transforming payments. Some see stablecoins as the first true mainstream crypto use case. 🔹 B2B Payments Are Thriving Unlike consumer facing payment startups, B2B fintechs are proving more resilient to economic turbulence. Last year, B2B payment startups raised $1.5B, outpacing consumer payments startups. Investors see vast untapped potential in enterprise transactions, where spending far exceeds consumer payments. What do you think, are we going to be witnessing a payments comeback this year?

𝗔𝗳𝗿𝗶𝗰𝗮’𝘀 $𝟭 𝗧𝗥𝗜𝗟𝗟𝗜𝗢𝗡 𝗿𝗲𝗺𝗶𝘁𝘁𝗮𝗻𝗰𝗲 𝗿𝗮𝗰𝗲 𝗶𝘀 𝗵𝗲𝗮𝘁𝗶𝗻𝗴 𝘂𝗽 – 𝗵𝗲𝗿𝗲’𝘀 𝘁𝗵𝗲 𝗳𝗮𝘀𝘁-𝗺𝗼𝘃𝗶𝗻𝗴 𝘀𝗰𝗼𝗿𝗲𝗯𝗼𝗮𝗿𝗱 🔥 ➊ 𝗧𝗵𝗲 𝗵𝗲𝗮𝗱𝗹𝗶𝗻𝗲 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆 Oui Capital’s brand new deep dive pegs Africa’s total (formal + informal) remittance pool at US $329 billion by 2025 — and on a 12 % tear to ≈ US $1 trillion by 2035 ➋ 𝗦𝘁𝗶𝗹𝗹 𝗺𝗼𝗿𝗲 𝗰𝗮𝘀𝗵 𝘁𝗵𝗮𝗻 𝗰𝗹𝗶𝗰𝗸𝘀 (𝗳𝗼𝗿 𝗻𝗼𝘄) Formal flows into Sub-Saharan Africa were US $53-54 billion in 2022, but informals account for 35–75 % of the real volume; a reminder that suitcases of cash and hawala networks remain stubbornly sticky ➌ 𝗠𝗼𝗯𝗶𝗹𝗲 𝗺𝗼𝗻𝗲𝘆 𝗸𝗲𝗲𝗽𝘀 𝗿𝗲𝘄𝗿𝗶𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝗽𝗹𝗮𝘆𝗯𝗼𝗼𝗸 • 781 million registered wallets in 2022 (+17 % YoY) processed US $837 billion — 66 % of global mobile-money value • Cross-border transfers over those rails hit US $16 billion, up 22 % YoY, showing diaspora users will switch when UX and pricing line up ➍ 𝗖𝗼𝘀𝘁 𝗴𝗮𝗽 = 𝗱𝗶𝗴𝗶𝘁𝗮𝗹’𝘀 𝗸𝗶𝗹𝗹𝗲𝗿 𝗳𝗲𝗮𝘁𝘂𝗿𝗲 • Average fee to send US $200 into Africa via banks: ≈ 8 % (and over 12 % in many Southern corridors) • Fintech & mobile-money channels now land around 3.5 %, saving migrants US $4-5 billion every year and inching toward the UN SDG target of 3 % ➎ 𝗪𝗵𝗮𝘁’𝘀 𝘀𝘁𝗶𝗹𝗹 𝗯𝗹𝗼𝗰𝗸𝗶𝗻𝗴 𝘁𝗵𝗲 𝗽𝗶𝗽𝗲𝘀? • Only 55 % of African regulators allow full e-KYC, forcing repeat checks and paper trails • Reliance on offshore USD/EUR clearing adds ~US $5 billion in needless FX costs • Fragmented mobile-money networks mean a Kenyan wallet can’t always talk to a Ghanaian one - an API gap crying out for builders. ➏ 𝗧𝗵𝗲 𝗽𝗿𝗶𝘇𝗲 𝗳𝗼𝗿 𝗳𝗶𝘅𝗶𝗻𝗴 𝗶𝘁 PAPSS and other real-time, local-currency rails could claw back that US $5 billion in correspondent-bank fees - and every 1 % drop in remittance costs frees up ≈ US $6 billion a year for African households Big question: 𝘾𝙖𝙣 𝙢𝙤𝙗𝙞𝙡𝙚 𝙬𝙖𝙡𝙡𝙚𝙩𝙨, 𝙋𝘼𝙋𝙎𝙎, 𝙖𝙣𝙙 𝙚𝙢𝙚𝙧𝙜𝙞𝙣𝙜 𝙨𝙩𝙖𝙗𝙡𝙚-𝙘𝙤𝙞𝙣 𝙘𝙤𝙧𝙧𝙞𝙙𝙤𝙧𝙨 𝙥𝙪𝙡𝙡 𝙩𝙝𝙚 𝙞𝙣𝙛𝙤𝙧𝙢𝙖𝙡 𝙛𝙡𝙤𝙬𝙨 𝙞𝙣𝙩𝙤 𝙩𝙝𝙚 𝙡𝙞𝙜𝙝𝙩 𝙗𝙚𝙛𝙤𝙧𝙚 𝙡𝙚𝙜𝙖𝙘𝙮 𝙛𝙚𝙚𝙨 𝙚𝙭𝙝𝙖𝙪𝙨𝙩 𝙢𝙞𝙜𝙧𝙖𝙣𝙩 𝙬𝙖𝙡𝙡𝙚𝙩𝙨? 🔗 Full analysis in Oui Capital’s “Africa’s Cross-Border Payment Landscape” report. Highly recommended reading for anyone building or investing in the rails of tomorrow. Thoughts? Drop them below ⬇️ Oui Capital Joseph Cleetus Dmitri Navaratnam Amar Sinha #crossborderpayments #remittances #payments #wallets #distuptions

🚀 How Instant Interoperable Payment Systems (IIPS) Are Quietly Transforming Modern Economies We often talk about faster payments. But what if the real story is structural economic change? This research brief from IPA shines a spotlight on the ripple effects of IIPS like 🇮🇳 UPI and 🇧🇷 Pix. 📌 It’s not just about speed. It’s about inclusion, innovation, and impact. Here’s what stood out for me: ✅ Financial inclusion at scale — IIPS reduce entry barriers and bring the unbanked into the formal economy. ✅ Cost-efficiency — Dramatically lower transaction costs for both individuals and MSMEs. ✅ Digital trust layer — Every transaction creates verifiable digital history—essential for credit scoring and access to finance. ✅ Open innovation — APIs + interoperability = level playing field for fintechs, not just big banks. ✅ Ecosystem shift — IIPS support credit, insurance, savings, and remittance use cases in underserved areas. ✅ Better policy tools — Real-time data flows give governments better visibility for targeted transfers and economic interventions. And yet… 🚧 The real unlock happens when policy and tech move in sync: - Mandatory participation from FIs - Digital identity infrastructure - Pro-competition design - Open banking alignment 🌐 As we design the next phase of payment systems—across Africa, Asia, and Latin America—IIPS could be the public infrastructure of the digital economy. 💭 If you're in fintech, digital public infrastructure, or financial inclusion—this is one paper you don’t want to miss. 📎 I’ll drop a link in the comments. #payments #banking #instantpayments

In the context of the upcoming review of EU payments rules (PSD/PSD3), some key changes are coming to the EU payments sector. EU Commission head of unit (retail & payments) Ducoulombier: "We propose to modify the Settlement Finality Directive (SFD) to enable non-banks to access payment systems. We also propose remedies to the recurring ‘de-risking’ problem faced by some Payment Institutions (PIs) and E-money Institutions (EMIs), which should substantially improve their capacity to open and maintain bank accounts." Meaning if the EU Commission proposal goes through, stablecoin (EMT) issuers will be able to access central bank payment systems, safeguard funds with the central bank, and should have less trouble opening bank accounts. Good development for innovation and competition in payments in the EU, not only for stablecoin issuers, but fintech companies more generally. Source: https://lnkd.in/ewWVb_a3 #payments #stablecoins #innovation

Behind every scoop of Milky Mist Dairy is a story of change - one that began over 30 years ago, long before ‘digital’ became a buzzword. Back then, getting good quality milk for Milky Mist Dairy was a challenge. Middlemen were the norm, payments were not transparent and purity was not guaranteed. It was also difficult to address farmers’ concerns when everything was routed through intermediaries. Then things started to change. Thanks to the government’s push for digital infrastructure. With better banking access, we could finally solve one of the biggest issues: fair and timely payments. We no longer rely on middlemen today. Farmers bring their milk to our collection points and our team visits twice a day. Payments go directly into their bank accounts every week. Nearly 70,000 farmers supply us with pure, high-quality milk today. We are able to pay out total ₹5 crores directly - no delays, no dilution. Digitalisation helped us connect with the people who matter most. This is real progress, for them and for us.

Users will abandon your platform in 30 seconds if they don't trust they can get their money out fast. Even if you spent millions on your UX. A Paysafe study showed that 82% of users stay loyal to platforms that nail their payment experience. That's the foundation of everything.  42% of bettors now expect instant cashouts.  When researchers actually studied sports betting user behavior, they found that 49% of users would immediately jump ship to a platform offering faster withdrawals. That number shoots up to 60% for anyone who's dealt with payment issues before.  More than half your users are ready to bounce just over withdrawal speed. One of our marketplace customers introduced instant fiat payouts and their seller base exploded 1350% in two quarters.  34% of bettors and gamers make platform choices based on payout speed before they even look at your other features. Your fancy UI and low fees? They don't care if they can't get their money fast. Product leaders need to understand that users live in a world of Venmo and Cash App. When you make them wait 5 days for their money, they're not thinking about your "risk management.” Build instant payouts first. Everything else is secondary. Users are already telling you this with their actions. Your roadmap might be full of shiny features, but none of that matters if users don't trust they can get their money out.