At a Glance: The Payment Ecosystem Powering Subscription Success
Elements of a Payment Ecosystem Payment ecosystems is a term that typically evokes complexity and confusion among novices and professionals alike. Terminology, networks, and regulations are some of the factors that create and foster this less-than-positive perception. The reality is that payment ecosystems are like a machine with many moving parts that rely on each other to operate efficiently. At its core, the ecosystem consists of a network of participants who communicate financial information back and forth. The primary problem is that they don t all speak the same language and often have unique rules, which can add to the complexity. For merchants, this added distraction can hinder you from staying focused on your core business and force you to spend time and resources trying to understand (or troubleshoot) the intricacies of these relationships rather than staying focused on the needs of your core business. Payment ecosystems are like a machine with many moving parts that rely on each other to operate efficiently. Consider credit card processing, for example. While there is a general rule for how the process works, there are plenty of variations in addition to differing roles of participants in the same flow. Let s take a look at the payment ecosystem for a subscription business and its processes most of which takes place in a matter of seconds or minutes. 2
Processing a Credit Card from Purchase to Payment View all View all Customer Merchant Recurly Gateway Processor Association Issuer Customer Makes an online purchase Receives the order info and uses Recurly to manage subscription billing Stores the credit card information securely and passes the payment request to the gateway Securely packages and sends the request to the processor Sends the information to the proper card association Will route the request to the proper issuer through its network Approves (or denies) the transaction and returns the response back to the network Is billed by the issuer on their monthly statement 3
1. Customer 2. Merchant The customer makes an online purchase. The entire process begins with the customer, who makes an online purchase by entering credit card information into an e-commerce site. Besides the credit card number, billing information can be entered as well. The merchant receives the order info and uses Recurly to manage subscription billing. For businesses with a recurring payments model (e.g. monthly subscriptions), the customer s credit card information is sent directly to the billing partner (e.g. Recurly) and not the merchant, reducing the merchant s PCI liability. 4
3. Recurly 4. Gateway Recurly stores the credit card information securely and passes the payment request to the gateway. The Gateway securely packages and sends the request to the processor. Recurly (e.g. billing partner) bridges the gap between your business (user accounts, product plans) and payment processing (card validation, securing financial data, invoicing, reporting). Recurly also provides services such as integration, gateway setup, PCI compliance, account management, invoice generation, user notifications, reporting, upgrades/ downgrades, and data portability. The payment gateway normalizes credit card data and then securely transfers information to the payment processor or acquiring bank. Acquires need a payment processor to provide all of the software and systems in order to connect with the card associations and securely complete transactions. Next, the payment is routed to the optimal payment gateway based on a variety of transaction types. 5
5. Processor 6. Association The processor sends the information to the proper card association. The association routes the request to the proper issuer through its network. (American Express, MasterCard, Visa) While these associations aren t banks or issuers of credit cards or merchant accounts, they provide the network between banks to facilitate payments of a specific brand. They also function as a governing body of a community of financial institutions to support credit card processing and electronic payments. The payment brand sends your request to the card issuer (the card issuer is the bank that issued the card to the customer). Issuing banks pay acquiring banks for purchases that their cardholders make. 6
7. Issuer 8. Customer The issuer approves (or denies) the transaction and returns the response back to the network The customer is billed by the issuer on their monthly statement Whether the issuer approves or declines the transaction, the response is sent to the payment brand. If approved, the issuer posts the transaction to the customer s account, and the merchant provisions the item or service to the customer. At the end of the billing period, the customer is charged by the issuer with the amount appearing on the monthly statement. The funding and settlement process when money is deposited into a merchant s account for processed transactions can take up to two business days. 7
Understanding Your Business Needs Companies should evaluate and choose the right billing partner. A good place to start is to find a partner who understands both payments and technology relevant to your company. Billing partners generally sit above payment gateways to bridge the gap between your business (user accounts, product plans) and payment processing (credit card validation, financial data accessibility, invoicing, reporting). Not all are created equal in terms of features and support, so having a clear understanding about specific business needs and requirements is a must. LEARN MORE 8
Recurly provides enterprise-class recurring billing management for thousands of subscription-based businesses worldwide. +1.844.732.8759 sales@recurly.com 2016 Recurly, Inc. All rights reserved.