In our previous post, we provided an introduction to key terms in the banking industry. This time, we will focus on basic types of payments that you may encounter in your business.
PAYMENT TERMS:
B2B
B2B, which stands for Business-to-Business, refers to commerce between two enterprises as opposed to transactions between a business and an individual customer. The size of most B2B transactions is larger than B2C (Business to Consumer) transactions because generally an enterprise will be seeking to buy a large inventory of items to sell to end users. B2B purchasing may also involve raw materials used to manufacture finished products or services. B2B deals may be subject to bidding processes and negotiations, so payments are rarely immediate.
B2C
The term Business-to-Consumer (B2C) refers to the process when a company sells products and services directly to consumers who are their end-users. Most enterprises that sell to consumers can be referred to as B2C companies. B2C payments can take various forms: many B2C transactions take place on websites, where consumers buy products directly from online retailers. Today, many B2C purchases are conducted on mobile apps. When dealing with cross-border payments, businesses should offer familiar payment methods at each location and generate personal relationships with customers.
C2B
C2B, which stands for Consumer-to-Business, is a system in which an end user or consumer provides a product or service to an enterprise, which then uses it to complete a business process. Another C2B model is when a consumer allows a business to market a service or product on their website or blog in exchange for a fee. A different form of C2B is when an end user announces a need and businesses compete to meet it.
C2C
The C2C (Consumer-to-Consumer) business model involves transactions between two consumers. This type of commerce is typical of intermediary auction websites such as eBay, Etsy and Craigslist, but the site does not take responsibility for the quality of the products. In C2C transactions, prices are negotiable and the purchasing process is simple. These websites usually provide convenient payment methods such as PayPal, credit cards, debit cards and mobile apps.
As a rule, it is worthwhile to keep your eye on developing payment trends and new models. The ability to facilitate payments for both enterprises and individual buyers is key to your commercial success.
In this post we will introduce you to some of the terminology used regularly in the banking sector.
BANKING TERMS:
Bank Wire/Wire Transfer
A bank wire is an electronic message system, which enables banks to communicate regarding various actions or developments connected to client accounts. A wire transfer, on the other hand, constitutes the electronic transfer of funds across a network, which may contain a large global group of bank administrators. Wire transfers enable individuals or businesses in different geographic locations to safely transfer money to various entities.
SWIFT Code
The SWIFT code of the Society for Worldwide Interbank Financial Telecommunication is an internationally-recognized identification code for various banks around the world. SWIFT codes are generally used for international wire transfers, and are comprised of 8 or 11 alphanumeric characters. If you plan to send money to an entity overseas, you will need to have the recipient’s SWIFT in order to perform the transfer.
Virtual IBANs
An IBAN (International Bank Account Number), is a virtual account issued by a bank, which enables the account holder to receive incoming payments and reroute them to a real bank account. Virtual IBANs provide all the functionalities of traditional bank accounts such as sending and receiving payments, bank statements, and more. IBANs enable international companies processing transactions in different currencies to easily reconcile all incoming payments. Using IBANs, these merchants can allocate a unique virtual account to receive payments from each client and for each currency, thereby increasing efficiency and cutting costs.
SEPA
The European Union (EU) created SEPA (Single Euro Payment Area) as a payments ecosystem which regulates how cashless payments are transacted between Euro countries. European consumers, businesses, and government agencies that make payments via direct debit, credit card or through credit transfers use the SEPA system. In the designated zone, businesses can carry out various transactions in Euros, regardless of their location.
Correspondent Bank
Correspondent banks are financial entities that serve as agents on behalf of other financial institutions, often foreign banks. Correspondent banks may handle foreign exchange, manage international investments, facilitate international trade and provide other services to the foreign bank in exchange for a fee. Foreign banks avail themselves of the services of correspondent banks when they are unable to establish a branch in a given country.
EMI
The Electronic Money Institution (EMI) supplies licenses for issuing electronic money. It allows certain entities to issue their own currency, which can be used outside the location of the payment system. It can also be converted to other currencies and service third-party payments. In addition, the EMI license allows the created currency to bind already existing payment bank cards to client sub-accounts. EMI licenses enable the issuing of cards of major vendors (VISA, MC, etc) and even the creation of an independent card payment system.
STAY TUNED FOR OUR NEXT BLOG POST ABOUT PAYMENT TERMINOLOGY
Here are some of the most inventive fintech initiatives already meeting a wide range of challenges related to open banking today:
TrueLayer
TrueLayer has developed a platform to help third-parties enhance KYC compliance processes, open banking, and PSD2 qualifications. TrueLayer’s APIs, one for account data and another for payments, enable turnkey access to banking data, eliminating the need for companies to design their own integrations. TrueLayer has developed partnerships with a variety of financial entities involved in open banking, personal finance, and accounting. The startup is regulated by the UK’s Financial Conduct Authority (FCA).
Divido
Divido provides retailers with the ability to offer consumer credit at the checkout stage of an online purchase. The company pools several lenders, so that when a customer applies for credit online or in-store, Divido submits the details to its connected lenders through an API for an immediate decision. Divido offers its services in multiple currencies to retailers, lenders and banks.
iwoca
iwoca provides loans to SMB companies in the UK, Poland, Spain and Germany. It also offers open banking in conjunction with several well-established traditional banks including Lloyds Bank, Barclays and HSBC, so that borrowers can instantly submit verified information. iwoca claims that its technology enables decision-making based on a company’s business performance and not just a credit score, thereby providing greater opportunities for SMBs.
GoCardless
GoCardless’ main niche is bank-to-bank payment methods. GoCardless defines itself as a platform enabling customers to access a variety of payments systems without having to integrate with each one separately. Through its direct debit offering, retailers can collect one-off or recurring payments automatically.The startup’s aim is to facilitate more direct payment methods across a wide range of locations.
DoPay
DoPay’s cloud-based payroll platform enables employers to pay staff who do not have a bank account (some 2 billion people worldwide) without any need to pay cash.
The platform facilitates various payroll processes like calculating salaries and submitting government forms. Salaries are paid into a DoPay account, while recipients are provided with a pre-paid Visa card to use in-store or online, as well as a mobile phone app to manage their finances.
Chip
Chip is an automated savings app which connects to the user’s current account. The Chip algorithm calculates how much the customer can afford to save and transfers the designated amount to a Chip savings account, which is held with Barclays. The sum is continuously adjusted based on the user’s spending habits. Chip has applied to the FCA to become a regulated account information service provider (AISP). Once the company qualifies, no bank will be able to deny its customers access to Chip’s services.
Yapily
Yapily aims its services at fintech developers, providing tools to connect their apps to retail banks, gain access to users’ account data, and initiate payments via its APIs. Yapily features a transparent API that does not store any data. The service is charged per use rather than per user.
Yolt
The free Yolt app categorizes payments, predicts outgoings and has a partner marketplace for deals related to a variety of financial services. It also offers financial advice in-app.This user-friendly interface connects to a range of bank accounts and banks including Lloyds Banking Group, RBS and HSBC brands, as well as challenger bank Starling.
Smart Bill
Smart Bill focuses on the ‘subscriptions trap,’ which involves consumers who are being automatically billed for unwanted subscriptions that they have forgotten.Once granted permission, Smart Bill currently scrapes the user’s bank account to discover recurring payments and categorize them. Users can review the subscriptions and have Smart Bill cancel them. The app also identifies renewal dates for a variety of services and automatically ensures users will be getting the best deal at renewal.
New fintech companies are bringing greater financial opportunities to retailers, SMBs, banks, customers, fellow fintech startups, employers and a wide range of other entities. It is only to be expected that as open banking expands, many more fintech initiatives will develop to serve new needs and diverse audiences.
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Our payment glossary is a great source for definitions, in-depth information and resources. Take a moment to understand the reasons for shopping cart abandonment and high fraud rates. Find out what open banking is and how it will affect your payment options in the near future. Read about ways you can overcome cross-border payment obstacles. Learn how Artificial Intelligence can jumpstart your business. And much more.
Feel free to contact us with any questions you have at [email protected].
Go to bm2Pay Payments Glossary
The payments industry is highly dynamic and continuously disruptive. There is a common consensus on that. Looking back over the last couple of years, we have witnessed some dramatic developments: Veteran financial institutions are being forced to open their systems and alter their services to keep up with ongoing payment changes and demand for instant payments. New players are replacing traditional payment entities with rapid processing capabilities.
Here are some of the evolving trends that can we expect to see in the payment industry during the coming year:
Collaboration between banks, payment processors and other third-party payment providers
PSD2 European regulation, increasing competition and customer demand for personalized services have all induced banks to open their APIs to third-party payment processing players. While such regulation does not currently exist in the US and other areas, the model of open systems is expected to spread to other countries.
Increased competition, as well as greater cooperation between banks and third-party providers, will spur the development of a wider and less costly range of services for retailers and consumers.
With more than 60% of Millennial and Gen Z customers willing to share their bank account credentials with third parties, instant customer service will become a payment norm. Mobile apps will serve as the main user medium.
New collaborations among key players in the global payments industry, such as credit card companies, payment processing companies, fintech innovators, fraud detectors and others, are expected to lower the costs of cross-border transactions.
Blockchain technology will enable the creation of an international clearinghouse which would eliminate dependency on correspondent banks and other intermediaries in global transactions.
Distributed ledger technology will enable cross-border payments to become both more efficient, faster and less expensive for the retailer and end customer.
Blockchain technology stands to mitigate risk, facilitate the reconciliation process, and automate compliance issues.
The increased use of mobile phone apps for online banking, payments and other financial dealings has made the need for augmented security measures imperative. Traditional authentication methods like passwords and security questions can no longer meet the current sophisticated wave of cyberattacks. Machine learning is now being employed to ensure robust authentication capabilities.
By using behavioral biometrics, machine learning enables the study of many aspects of a user’s actions, from device swiping to typing cadence. These inherent behavioral patterns are impossible to replicate and are analyzed continuously in the background by a smart platform. As a result, the user experience remains both frictionless and highly secure.
Banks can use machine learning to monitor their processing systems for threats, examine previous cyber attacks and establish control centers to identify anomalies.
While the Internet of Things (IoT) is still in the development stages, it is expected to significantly impact not only the vehicular industry and city planning but also payments. Consumer demand for smart payments for various home services and products is driving the development of automated payment processes embedded in appliances.
Refrigerators can now compile a shopping list, do your shopping, order pizza and independently perform payments. Smart washers note when you’re low on detergent, automatically place replenishment orders, and make payments. Smart home appliances ensure an ideal customer experience.
With voice-controlled assistants like Google Home and Amazon’s Alexa, users can make a voice purchase request based on payment card and shipping information already on file. This payment mode transforms the old payment paradigm by eliminating the need for a mobile phone or the use of any kind of payment card.
Both banks and merchants accumulate large amounts of data about customers. Smart data can offer predictive analytics, fraud modelling, real-time business offerings, and more.
Opportunities for new services can be explored based on real-time predictive insights. By examining existing online banking patterns, payment entities can provide new products to meet evolving needs.
Smart data enables merchants to understand current customer behavior and develop personalized offers and customized consumer journeys to develop one-on-one relationships and inspire loyalty.
Evolving global payment dynamics are forcing financial players such as banks, payment service providers, fintech innovators and payment processors to consolidate, assume new roles, and collaborate with new bedfellows in order to survive. It will be interesting to see how it all pans out.
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