Today, the booming card-based payment industry has already driven Payment Switch to be very closely associated with the Merchant for a wide variety of reasons. After passing through several stations, payments originate from the POS terminal and finally reach the Issuer. Together, these points and flows constitute a payment value chain.
As part of the Payment Value Chain, merchant discounts, also known as full costs of payment acceptance, range between 2-3% of the transaction amount, and are comprised of the following items:
- 10% paid to the merchant processor for processing/per-item fees.
- 1-2% paid to the credit card company
- 85-90% interchange amount, a fee paid by the merchant to reimburse the credit card issuer (banks).
The payment switch reduces the largest value in the payment value chain (processing fee + interchange).
Benefits Of Payment Switch
Processing Cost Saving
- The principle of processor neutrality: Separating POS from issuers is an important method for merchants when evaluating their payment processing relationships.
- The middleman is eliminated: Some merchants use a middleman processor or a payment gateway to save on costs. Payment switches can alleviate the need for intermediary processing arrangements and reduce processing costs by routing transactions directly to processing endpoints.
- Batch settlement: Merchants using store-based batch settlement can reduce settlement processing costs by consolidating settlement records at the payment switch level into a single settlement file before transmitting it to the processor.
- The consolidation of multiple channels: Merchants often use multiple payment solutions and processors across different transaction channels – retail, restaurant, petroleum, e-commerce, catalogue and more. These organizations can benefit from volume discounts by consolidating these channels through a payment switch and sending all transactions to a single processor.
- The merchant can check an internal database before requesting outside authorization.
- Internal Gift Card establishment: Processing and managing gift cards in-house is done via a payment switch. During gift card transactions, the enterprise IT network never leaves the corporate network.
Intelligent PIN prompting: The Payment Switch enables merchants to adopt PIN debit where they can maximize conversion of high-interchange credit/signature debits into lower-interchange PIN debits. PIN debit interchange on transactions may be 50% lower than credit/signature debit interchange.
Changes in specifications: Processors and card associations routinely modify their processing specifications. Payment Switch enables POS terminals to be transparent in this regard.
POS Programming Cost Savings
Insulate the POS from processor-related changes: Payment switches provide an effective barrier to specification and regulatory changes from associations and processors. POS programming that is tailored to meet the changes in issuer specifications can be costly and time-consuming without a payment switch. By switching to the new payment services, a merchant can adopt these new payment types easily.
Centralized reporting: Merchants can centralize the entire settlement process by integrating a payment switch, which eliminates the need for batch settlement and the associated reconciliation challenges.
Experience Transaction speed: A WAN allows merchants to accelerate transactions to sub-seconds (instead of dialling out to the processor), which significantly improves the customer experience.
Multichannel recognition: Merchants who consolidate all transaction channels through a payment switch and accept all payment types across all channels (to the greatest extent possible) provide customers with a more personalized experience. As noted above, PIN debit cards are readily available through automated prompts, which reduces in-lane confusion.