The Core Component Every Successful Payments Company Is Build On.
The Core Component Every Successful Payments Company Is Build On.
Why Every Payments Company Needs A Unified Payments Data Model
In this newsletter, I will share why a Unified Payments Data Model (UPDM) needs to sit at the core of any Payment Service Providers or Acquirers' data infrastructure to have any chance at developing value-added capabilities that can help their merchants improve their performance, reduce costs, or effectively fight fraud.
While we see the rapid adoption of Artificial intelligence across different fields, the Payments industry lacks the same high-level rate of adoption, primarily because data has historically been obfuscated to deal with the limitations of legacy systems or engineering or product decisions that believe that a lot of the data is not as relevant for the merchant.
However, to have any real impact on payment performance, especially as merchants are becoming more adaptable to using multi-vendor solutions in processing, fraud, analytics, and payouts, having a Unified Payments Data Model at the core can help any data-driven Payments company succeed.
Having built several of the most successful payment companies' data Infrastructures, I believe that this Core Component is what sets them apart from Payment companies that are always lagging behind.
Let me explain…
The Importance of a Unified Payments Data Model
Why a Unified Model is Crucial in Today’s Diverse Payment Landscape
As the payments ecosystem continuously evolves, from the wide variety of diverse payment methods, the introduction of new technologies, and the constant adjustments of regulatory frameworks and compliance, managing payments data has become more complex than ever.
Because data comes from multiple providers, platforms, and formats, this has led to fragmentation, which requires payments companies to invest considerable time and resources into processing and customizing the data's output to fit their requirements.
For example, each payment method often necessitates different data fields and processing rules, making it challenging to unify the data.
Additionally, payment data is managed by many providers, including payment service providers (PSPs), acquirers, payment gateways, and processors, each using different data schemas, which results in inconsistent data representation.
Regional variations further contribute to this fragmentation, as regulatory requirements and payment preferences vary significantly across different areas.
The data fields required for compliance in one country may differ, complicating the creation of a cohesive data model.
Moreover, many payment systems are built on legacy infrastructure that may not support modern data standards. These outdated systems frequently use proprietary data formats that are difficult to integrate with newer technologies, exacerbating the challenges of managing and unifying payment data.
Therefore, a Unified Payments Data Model addresses the challenges that so many payments companies face by providing a standardized framework for data representation, ensuring consistency, interoperability, and efficiency across various payment platforms and stakeholders.
In short, a Unified Payments Data Model provides:
Consistency and Standardization: Different payment methods and platforms have their own data formats and standards, leading to consistency and data integration difficulties. A unified data model standardizes these formats, making aggregating and analyzing data from multiple sources more accessible.
Interoperability: While the majority of payments might still happen through card schemes such as Mastercard and Visa, the rise of new payment applications such as contactless, digital wallets, and tokenization, as well as the numerous new payment methods such as Account-to-Account, real-time payments, cryptocurrencies, and non-card digital wallets continues to grow. This leads to critical issues regarding the interoperability between systems. By using a unified data model that facilitates seamless communication between different payment systems, all parties can enhance the overall user experience.
Regulatory Compliance: The global nature of payments continuously has to battle the local or regional regulatory compliance standards being set forward, which, as of today, are still evolving every few years. Considering various regulatory requirements, a unified data model that ensures that data is captured and stored compliant can significantly reduce the risk of non-compliance and associated penalties.
Efficiency and Cost Reduction: Due to the highly modular way that payments are developing, which requires multiple integrations across platforms, leveraging a unified data model helps payments service providers, acquirers, and merchants reduce operational costs and improve efficiency, as they can eliminate the need for building custom ETL (Extract, Transform, and Load) pipelines, and custom code to make these platforms seamlessly communicate with each other.
By adopting a Unified Payments Data Model, all stakeholders benefit
Benefits for Different Stakeholders
By adopting a Unified Payments Data Model, ALL stakeholders benefit.
For Payment Service Providers (PSPs), a unified payments data model offers the core capabilities to collect and transform data received from various payment networks, systems, and acquirers.
This model enhances data analytics capabilities, allowing PSPs to gain better insights into transaction patterns and customer and merchant behavior, which can inform strategic decisions.
Additionally, it facilitates scalability, enabling PSPs to expand operations across different geographies and payment methods without extensive re-engineering of their data infrastructure.
Acquirers benefit from streamlined operations.
The unified model standardizes the mapping and sharing of multi-scheme acquirers, reducing reporting complexity to internal and external stakeholders.
It also enhances risk management by providing better visibility into transaction data, which helps identify and mitigate fraudulent activities more effectively.
Furthermore, the unified model ensures that transaction data is collected and stored in compliance with various regulatory requirements, reducing legal and compliance risks.
Merchants experience simplified payment processing, as the unified model reduces the complexity of integrating and managing different payment methods, allowing them to focus on their core business activities.
Enhanced data consistency and analytics allow the merchant to seek deeper insights into customer preferences and behavior by combining various data sources. This allows them to develop more data-driven and targeted marketing and improve customer service.
Lastly, the unified model provides a built-in mapping that makes A/B testing and Multi-Variance testing across multi-vendor setups through orchestrators and third-party vendors easier. This reduces the need for extensive pipelines and custom integrations, leading to significant cost savings for merchants.
Key Components of a Unified Payments Data Model
While the idea is to create an ISO standard for the Unified Payments Data Model, payment companies still tend to be unique in their data handling, and limiting them to a particular standard would be cumbersome.
Instead, the Unified Payments Data Model should be considered a framework for Payments companies to develop a core capability that allows them to go from being able to do Descriptive Analytics (What happened?) to eventually having the building blocks to enable Diagnostic analytics (Why did it happen?), Predictive analytics (What will happen?), and ideally Predictive Analytics (How can we make it happen?).
To do so, we start with the foundation of what a Unified Payments Data Model should look like.
Transaction Data
At the core of the model sits the transaction that holds the information.
The focus will be to standardize this across different providers and payment methods.
Payment Methods
Each transaction is done via a payment method, which needs to be categorized.
While simultaneously ensuring flexibility for future expansion of methods and related data fields.
Merchant Information
A merchant processes each transaction and its payment method, for which we hold data to identify, including onboarding specifics like MCC, risk profile, etc.
While ensuring that we balance sensitive data
Customer Data
While often an afterthought in most payment data systems, customer data is crucial as it is vital in linking data and attributes across platforms and payment methods.
Which, of course, needs to be anonymized for sensitive information
Payment Service Provider and Acquirer Details
While most PSPs don’t consider other PSPs, the future might be different, especially as more platforms are open to collaborating, making PSPs Orchestrators themselves.
Storing PSPs and/or Acquirer data is essential and allows us to add provider-specific identifiers.
Below is an example of a simplified payments data model to give an idea of what this looks like.
However, as those with experience with the complex databases that payments companies have, this model has been simplified to be the basis.
There are several areas where the Unified Payments Data Model can be expanded to capture more detailed and specialized information.
These elements can significantly enhance the model's utility for specific use cases and more advanced payment scenarios.
Critical areas for development would include:
Detailed Authorization Process: Adding fields to capture the nuances of the authorization workflow.
Device and Interaction Information: Expanding the model to include more data on how and where transactions are initiated.
Issuer and Scheme Details: Incorporating more granular information about issuers and payment schemes.
Advanced Reference Data: Adding fields for various reference IDs to support complex reconciliation processes.
Enhanced Risk and Fraud Detection: Incorporating more detailed risk scoring and fraud prevention fields.
These steps can evolve the Unified Payments Data Model from a solid foundation into a more comprehensive and nuanced framework.
If you embark on this model expansion journey, balancing standardization and flexibility is crucial.
The goal is to create a robust model that handles the complexities of modern payment systems yet is adaptable enough to accommodate the rapid innovations that characterize our industry.
Thank You for Reading. Feel free to Like, Comment, Share, or Post on Your Socials, as I appreciate all the feedback I can get.
P.S. Whenever you're ready, this is how I can help you:
1-on-1 Video Call with Dwayne Gefferie: If you want to solve your Payments challenge quickly, get direct answers based on 20 years of experience and continuous market research, develop a Strategy, validate your idea, or discuss a product feature. Book a 1-on-1 Video with me. [Limited Available Slots].
If you want to work with me in a larger capacity, either speaking, advisory, or consulting, feel free to email or DM me.