Channel Services Payment Network

channel services payment

With Channel Services Payment, you will know the types of services payment systems companies provide. Understand how channel services are applied in various transaction processing environments.

Understand which non functional requirements are the most important when developing each service.

Channel services payment provides specific element of application processing and common locations for functionality, by reducing duplication and data overlap and supports convergence of functionality and data.

Channel Services

Channel Services provide a common location for the services that support message communication between applications and message transformation into a common internal representation.

Common external applications are communicated with through channel services including Banknet, JCB, MDS, Visanet, NACHA, Fedwire, S.W.I.F.T. and Chips.

Channel Services implementations should provide online as well as batch file mechanisms for processing transactions depending on the interaction with the external application.

Implementation of Channel Services should support the common communication protocols used in the industry including TCP/IP and X.25.

Acquirer and Issuer functionality provides a common external communication mechanism to translate messages received in external formats into common financial transaction data objects to be used for processing the transaction in a services oriented architecture.

Channel Services should support common industry standards including ISO 8583, ISO 20022 and IFX.

Non-functional requirements that are most important to Channel Services include the follow:

  • Scalability: Channel Services architecture must support horizontal scalability and parallelization of processing to meet the high volume needs of ACH and retail payments.

    The Channel Services architecture must deliver linear scalability; maintaining a constant transaction processing cost as transactions volumes increase.

  • Availability: Channel Services are the critical external communication mechanisms used to communicate with external entities to accept and complete financial transactions.

    Channel Services are the gateways of the shared services processing environment; must be available 99.999%.

Types of channel services payment

  • Authentication
  • Authorization
  • Channel
  • Clearing and Settlement
  • Customer relationship
  • Fraud
  • Reconciliation
  • Routing
  • Security
  • Tokenization

Non-functional requirement is a requirement that specifies criteria that can be used to judge system operation, which defines how a system is supposed to be, a quality of a system.

Non-functional requirements examples

  • Availability
  • Flexibility/Configurability
  • Manageability
  • Performance
  • Scalability
  • Security
  • Traceability/Supportability
  • Transactions per second (TPS)

The purpose of channel services payment is to provide connectivity between transaction processing applications and to translate external applications messages into common internal formats that services can use for processing.

The Acquirer and Issuer functionality is to translate messages into common financial data objects. Which should provide mechanisms for processing transactions for both online and batch?

Also, it should support the common communication protocols used in the industry.

Non-functional requirements of Channel services

  • Availability
    • Provide Gateways of the shared services processing environment
    • It must be available 99.9999% of the time
  • Scalability
    • Horizontal scalability - the ability to increase number of processes
    • Linear scalability - Constant per transaction processing cost maintained as transactions volumes increase.

Acquiring Transaction Processing

In the current retail transaction processing environment, Automated Teller Machines (ATM) and Point-of-Service (POS) devices driven by acquiring institutions provide the primary channels for retail payment acquisition in the industry.

ATM utilization in the United States, for example has grown slowly of the cardholders used ATM's as their primary banking method.

Since 2008 there has been a slight decline in ATM utilization due to an increase adoption of online banking applications.

Transactions acquired via an ATM channel commonly include Cash Withdrawal, Envelope, Cash and Check Deposits, Non-Currency Dispense (Stamps, Tickets, and Travelers Checks), Balance Inquiry, Payments and Transfers.

Additional regionally supported transactions have emerged in the last several years including Mobile Top-Up, Utility Bill Payments and Interbank Funds Transfers for banked as well as unbanked customers.

Traditional POS networks driven by acquiring institutions provide a channel to acquire transactions from merchant retailers.

The operational costs of maintaining a POS payment infrastructure are high, requiring sophisticated hardware and software to initiate financial transactions; high operational costs place a strain on small merchant retailers who have limited financial resources.

Beyond the cost, merchant retailers benefit from the POS device capabilities to assist in tracking customers, employees, managing inventory, security as well as providing faster reliable payment services to its customers.

Transactions acquired at POS devices commonly include Cash Advance, Merchandise Return, Pre-Authorization, Purchase and Administrative Transactions.

An emerging acquiring channel is internet initiated person-to-person (P2P) and person-to-business (P2B) e-Commerce transactions; transaction volumes are increasing annually.

E-Commerce payment processor Paypal, experiencing growth in this payment channel, reported a double digits increase in revenue during 2012 over the same quarter last year.

As internet adoption increases in developing regions of the world such as China; e-Commerce transactions represent a significant opportunity for future retail payments growth.

A second emerging acquiring channel that is gaining popularity with customers for its 24 hour convenience and mobility is the initiation of financial payment transactions using mobile devices.

According to the Yankee Research Group, transactions initiated via mobile devices have a forecasted growth rate of double digits increase per year globally by 2015.

Visa Europe projects 50% of its transactions will be initiated via mobile devices in the future.

The emergence of mobile initiation of transactions represents a significant market shift in market preference; a shift that will be best supported through the deployment of common mobile acquiring transaction services in the future.

A third emerging acquiring channel is the integration of financial transaction initiation within social networks.

Sociological research performed by Uzzi, DiMaggio and Louch, suggests that social networks and relationships have an impact on personal and corporate finance dealings.

As financial institutions work to place transaction acquiring mechanisms in places of greater convenience for the next generations of its customers;

Social networking sites are an attractive acquiring channel to establish individual relationships with each of its customers.

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