How can you explain Payment Systems to non-technical stakeholders?

Payments systems like Central bank digital currency do not have intermediaries Payments systems allow not financial but non financial transactions also like balance check, transactions summary etc in India The Unified payments interface in India has successfully unbundled the payment rail from the bank profile for repeat transactions vide a virtual private address

Payment systems refer to the various methods and mechanisms through which financial transactions are conducted and funds are transferred between individuals, businesses, or institutions. These systems facilitate the exchange of money for goods, services, or to settle debts. Payment systems can include cash, checks, credit cards, digital wallets, bank transfers, and various electronic payment methods like online banking, mobile payments, and cryptocurrency transactions. They play a crucial role in modern economies by enabling efficient and secure financial transactions.

A payment system is like a digital wallet and set of rules that allow customer to access their funds, to move money, to send and receive money electronically, making it easier to buy things and pay for services without using physical cash. This is done from one FSP provider to another through either mobile banking App/Ussd, a wallet, a debit/ prepaid/ credit card, and online platforms.

I agree, while at a broad level Payment Systems are a set of regulations, these effectively lay out how different stakeholders interact with each other to make and receive payments seamlessly in a compliant and secure manner. They cover traditionally accepted payment methods and also emerging trends, like CBDC. Payment Systems are also essential to ensure the integrity of an economy, where every spend and receipt is tracked thereby actively mitigating risks associated with the unregulated market.

Payment systems can be referred as rails that help to connect a consumer and a merchant to facilitate the movement of funds (payments). Thanks to the highly regulated industry, the payment one comes with a series of rules, guidelines and norms that consolidate the ecosystem and all the involved stakeholders. With the help of PCI regulations within the payment industry, the standard for new players can be easily acknowledged and this can help to positively disruption the whole ecosystem.

Payment systems are fundamental to the operation of modern economies, enabling trade, contributing to financial stability and efficiency, and fostering innovation in financial services. Efficient payment systems reduce the cost and time of processing payments, thereby increasing the overall efficiency of the economy. They enable faster settlement of transactions, which is beneficial for both businesses and consumers. Modern payment systems, especially digital ones, can enhance financial inclusion by providing access to financial services to underserved and unbanked populations. This helps in integrating more people into the formal economy.

payment system is essentially a secure and organized way for people and businesses to exchange money electronically. It allows individuals and companies to make and receive payments conveniently and safely, without the need for physical cash. This system works behind the scenes to process transactions, such as online purchases, bill payments, and money transfers.

Payment systems perform a set of processing tasks to facilitate the transfer of funds from one account on a ledger to another. Tasks include checking the completeness of the payment instruction, orchestrating additional checks for compliance and funds sufficiency, supplementing or repairing information in the payment if needed, sending the payment to the external clearing (payment) system and sending data to reporting, accounting and billing systems. A typical payment flow might be debtor => debtor’s payment service provider (PSP) => central clearing (payment) system => creditor’s PSP => creditor. Each PSP recording the transaction on their ledger and the clearing system recording the transfer between PSPs.

Payment systems are complex mechanisms that facilitate the transfer of funds between individuals, businesses, and financial institutions. They play a crucial role in the economy by enabling transactions for goods, services, and financial assets Key components of Card based payment scheme: * Payment Gateway - service for merchants to accept electronic payments by transferring key information * Merchant Account - bank account that allows a business to accept and process electronic payment card transactions * Issuing Bank - The bank that issues credit/debit cards to consumers * Acquiring Bank - The bank that processes credit/debit card transactions for a merchant

Payment systems face various challenges, primarily stemming from the need to balance security, convenience, efficiency, and compliance. These challenges are crucial for maintaining trust and functionality in financial transactions. The main risks: * Security risks - fraud and cybercrime, Databreaches * Regulatory compliance - changing regulations, International standards * Technological challenges - integration with existing systems, keeping up with innovations * User experience - balancing Security with Convenience, Accessibility * Scalability and performance - handling High Volumes, Scalability * Emerging technologies - Blockchain and Cryptocurrencies, Artificial Intelligence and Machine Learning * Financial inclusion and privacy concerns

One of the biggest challenges in payment systems is legacy technology. In general, many payment systems have proven to be very reliable as they are maintained by specialists with high levels of knowledge about the code and internal processing. But old technology such as mainframe and COBOL based systems have their limitations and over time new functionality has been added, adding complexity to the environment. Banks have met this challenge by replacing legacy systems or components with newer technology and changing the architecture of their systems to a more modular approach which improves re-usability and adds flexibility

The best advice I received for communicating technical or complex information (such as how payments work or payment systems work) is to start with something the audience already know. For example, if the audience is familiar with how payments work in their own country, but not international, start with how domestic payments work (the thing they know) and then focus in on what they need to know in addition/where it differs. Your audience will feel relaxed starting with something they know, you simplify what the audience members brain is trying to do (find patterns) and reduce the amount of information the audience needs to absorb - they only need to focus on the differences not learn the whole flow or product or concept from scratch.

* Know your audience - tailor your message for experts, businesses, or general users * Use clear language - avoid technical terms * Visual aids - employ diagrams flowcharts and infographics to illustrate concepts * Highlight benefits - focus on advantages like convenience, speed and security * Interactive Engagement - video user-flow and use-cases * Consistent messaging - ensure uniformity across all communication channels * Real examples - share case studies to demonstrate practical applications * Accessibility - make content accessible to all, including those with disabilities * Regular updates - keep users informed about new features and security measures * Feedback channel - show responsiveness to user input for continuous improvement

Good info & important basics here so far! I've found keeping the complexity of payment systems simple and in bite size segments is critical. It's the money, interested parties want to understand, but it gets complicated quickly. I particularly utilize visuals; we have a chart that explains Interchange and it's less than intuitive volatility to business owners & finance teams. It shows the types of payment processing plans that exist and how the market functions and seems to intuitively communicate the complexity. I also always like the analogy of water flowing in pipes, like a plumbing system, to map and follow data & currency paths.

There is not one global payment and settlement system. Note that Visa, Mastercard, etc are their own proprietary systems with global reach, yet not a global system. Every jurisdiction has at least one (High value vs Low value payment/clearing) catering to its home currency and sometimes to a foreign currency as well. Central Banks and Banking Associations run these. So settlement (via Central bank money) is different from Payment. It is important to know that not via any bank/PSP any other bank/PSP can be reached. this is where correspondent banks and their Nostro Account structures and the clearing systems come into play.

Payments are very nuanced. It is different across markets, regions, and countries because of differences in policies, Tech adoption, and consumer behavior to name a few. Even International schemes like Visa, Mastercard and Swift have had to adjust for this variability across the countries they serve. This is critical as you engage with trends, statistics, and forecasts to avoid assumptions. Always ask yourself - Is this piece of data true for my market?

SWIFT is often mentioned as a payment system, but no transactions or accounting are done through SWIFT itself. So strictly speaking it is not a payment system. It is merely a messaging system, albeit for financial transactions.

Throughout payment systems, and particularly payment processing there are a lot of fees and percentages being taken along the currency flow that do not necessarily have to be called a fee or be clearly disclosed. I feel one of my greatest values is explaining and revealing these costs, even just for awareness and then brining optimization.