To provide a solution that’s not only flexible but scalable, Payconiq offers both 3-corner and 4-corner card payments. This technology will allow banks and payment providers faster transactions. It’s a feature that makes our technology stand out through interoperability.

Each model has its specific benefits and features. Integrating both, Payconiq aims to be the partner for many organizations in Europe through collaborative efforts.

The Three Corner Model

The three-corner model is also known as the closed-loop. As the name implies, there are three players within these transactions. These are:

  1. Cardholder
  2. Merchant
  3. Card network

This type of system is more common on certain cards. In these systems, you use the card, and the merchant has a POS system from the same network. It can also work with other terminals, provided they are authorized to be part of the same network. The POS reads the card through a magnetic card or smart chip technology.

Most of the time, the consumer authorizes the transaction through a PIN. The card network accepts the transaction as secure and lets it push through. The PIN is a way to help prevent fraud.

Alternatively, one could also allow transactions by inputting information from the card. It includes the number, date, and CVV.

The merchant often has an agreement set with the network. They have a limit of authorization requests at a set time (usually during the day). It often happens because both the cardholder and the merchant have different banks. The network pays the money immediately to the merchant minus the fees while the cardholder fulfills that amount.

It is a system that’s more common with cards like AMEX or Diners. Three corner models are often more expensive to maintain as the issuer pays for transactions in advance. The network then collects from the cardholder’s account later.

This system has more inherent risk due to credit. Higher fees also occur because a card network doesn’t have the same capacity as a bank and outsources. While it is a closed-loop, the card network is accountable for the bulk of the work, which it later charges as a part of its fees.

The Upside and Downside of a Three Corner Model

A three-corner model’s transactions are much faster because of the central entity involved. However, it isn’t a flexible system compared to others. Both the cardholder and merchant must have the same provider. If the merchant doesn’t have a terminal that matches the issuer, it can lead to transaction problems. It can lead to lost transactions and business on both ends.

The Four Corner Model

Also known as a four-party scheme, this model is the most commonly used around the world. As mentioned with the three-corner model, the banks of both the merchant and cardholder are different. In this model, both entities are a part of the transaction. Here are the four players or corners:

  1. Cardholder
  2. Issuer (Cardholder’s Bank)
  3. Merchant
  4. Acquirer (Merchant’s Bank)

Both banks often connect to a single entity that allows transactions between both. You’ll often find these kinds of systems with well-known names, like Mastercard and Visa. The banks interact through a card network like them to make transactions seamless.

Merchants only need to have a POS of the card network that accepts both merchants. People don’t often notice this because these networks are the norm. Both sides must fulfill the payment after each transaction which the network will verify.

In the three corner model, the card network handles the entire transaction. In the four corner model, both entities must fulfill the transaction requirements for it to go through.

The reason card networks are pivotal is because they’ve developed relationships. As such, they can interact with these institutions much faster. It’s even become possible to cross borders without impediments through a system like this.

The four corner model also has a PIN code. The PIN is a form of authentication for every transaction. However, there is no guarantee that the transaction will go through. The POS will notify you if there is a problem with the transaction or if it went through.

The issuer will be responsible for giving the money, and the acquirer will have to collect it. They must interact with the card network though it no longer requires any action from the consumer or merchant. You’ll see the final balance in your account without knowing the interactions behind it and the information remains transparent.

The Upside and Downside of a Four Corner Model

Due to its standardization, the four corner model is one of the most reliable ways to transact today. The banks handle the details, and you’ll only have the results of a debit or credit to your account. However, relying on two different banks can also lead to some problems.

For example, if the debit goes through on your end but the acquirer fails to accept the transaction, the purchase will not go through. You won’t get your money right away in this case as the card network is still holding on to it.

It will likely be credited back to your account within a day or two. In other cases, you’ll have to call your bank to get your money, which may result in long processing times.

The Best of Both Worlds

Both the three corner and four corner models have their strengths and weaknesses. Payconiq circumvents this by offering both types of systems to banks, payment providers, and merchants. That way, they can choose the best for their system. Having these two models will help create more options for acquiring interconnectivity across Europe.

It’s the reason many businesses are now switching to Payconiq for convenience. It is the most flexible network available.

 

References:

The three corner model in card payments, https://www.paiementor.com/the-three-corner-model-in-card-payments/

The four corner model in card payments, https://www.paiementor.com/the-four-corner-model-for-card-payments/