Payment schemes are the invisible backbone of modern payment systems. They ensure that payment transactions move reliably, quickly, and securely from one bank account to another. Whether you are making your first online payment or working in a banking or FinTech environment, payment schemes define how payments are processed. This article explains what payment schemes are, which types exist, and how they work – from SEPA Credit Transfer (SCT) to Visa.
Key Takeaways
What are payment schemes?
Payment schemes are standardized rulebooks that define how payments are processed between banks and payment service providers. They ensure clear processes, uniform formats, and secure payment processing. (Learn more in the article Payment Schemes Definition)
Why are payment schemes important?
They ensure security, interoperability, and reliability in banking and payment processing. Unified standards guarantee that payments can be executed quickly and accurately worldwide.
What types of payment schemes exist?
- The most well-known schemes include SEPA (Credit Transfer, Direct Debit, Instant Payments) as well as card schemes such as Visa, Mastercard, or Girocard.
Who is involved in payment schemes?
- Participants include banks, payment service providers, clearing institutions, and regulatory authorities. Together, they ensure that payments are collected, cleared, and settled efficiently and in compliance with regulations.
Where do payment schemes apply?
- Depending on their scope, payment schemes operate regionally or globally. While SEPA covers the European payments area, Visa and Mastercard operate worldwide and enable cross-border payments across national borders and currencies.
Fundamental definition and structure of a payment scheme
Payment schemes define the rules under which payments are processed between banks and payment service providers. They ensure standardized workflows, security, and interoperability within payment systems. This includes specifications for processes, data formats, security standards, and compliance requirements that enable stable and cross-border payment processing.
What does a payment scheme regulate?
A payment scheme defines the entire payment flow, from initiation to settlement. It specifies security requirements, data formats such as ISO 20022, and participation criteria for banks and payment service providers. Rules for chargebacks, dispute handling, and compliance are also integral components.
Difference between payment system and payment scheme
- Although closely related, the two terms describe different aspects of the payments landscape.
- Payment system: The technical infrastructure used for processing payments, such as RTGS networks like TARGET2.
- Payment scheme: The rulebook that defines workflows, rights, and obligations of participants, for example SEPA Credit Transfer (SCT).
Technical infrastructure vs. regulatory requirements
Payment systems provide the technical foundation for clearing and settlement. Payment schemes define the functional and regulatory rules implemented within those systems. These include interface specifications, security standards, compliance rules, and testing requirements, often supported by sandbox environments.
Access criteria for banks and providers
To participate in a payment scheme, banks and payment service providers must meet defined requirements, including:
- Regulatory authorization: Institutions usually need official approval to participate in banking and payment processing.
- Standard-compliant technical interfaces: All systems must be compatible with the scheme’s technical specifications.
- Compliance and reporting obligations: Strict compliance and reporting standards are required to ensure transparency and transaction security.
Types of payment schemes
Payment schemes can be categorized by structure, participants, and use cases. They range from traditional card networks to credit transfer and direct debit systems, as well as modern real-time and digital payment solutions:
- Three-party schemes such as American Express combine cardholder, merchant, and scheme provider in one system. The provider also assumes the banking role, simplifying processing but limiting interoperability.
- Four-party schemes such as Visa or Mastercard involve the cardholder, merchant, issuing bank, and acquiring bank. This structure offers high flexibility and global acceptance.
- Real-time payment schemes such as SEPA Instant Credit Transfer (SCT Inst) enable direct credits within seconds, 24/7, using standardized messaging formats.
- Regional and international schemes either serve domestic markets or enable cross-border payments across multiple currencies.
- Mobile wallets and digital schemes such as Apple Pay or Google Pay build on existing card and banking systems and extend them with tokenization and strong customer authentication.
These types demonstrate how payment schemes support diverse requirements, from domestic direct debits to global payment processing.
How do payment schemes work technically?
Payment schemes define the rules and processes for technical payment processing, including authorization, clearing, settlement, data formats, security, and liability. The actual execution is handled by the respective payment system and its underlying infrastructure.
Card payment flow within a scheme
A typical card payment process includes the following steps:
1. Payment initiation by the cardholder
- The customer initiates the payment at the POS or online.
2. Authorization request via the scheme
- The payment system checks card validity and available funds.
3. Decision by the issuing bank
- The bank approves or declines the transaction.
4. Clearing of transaction data
- Transaction details are exchanged and aggregated between banks and the scheme.
5. Settlement of funds
- The actual transfer of value between banks takes place.
6. Posting and reconciliation
- Transactions are posted and reconciled in the participants’ banking systems.
This process highlights the close integration of scheme rules and technical payment systems.
Data formats and clearing processes
Payment schemes define strict standards for payment data exchange.
- Clearing vs. settlement
Clearing refers to the exchange and validation of payment data, while settlement represents the actual transfer of funds. - Role allocation
Issuing banks authorize transactions, acquiring banks receive payments, clearing houses process data, and schemes enforce compliance. - ISO 20022
This standard ensures uniform, scheme-independent data formats for credit transfers, direct debits, and card transactions, reducing errors and improving automation.
ISO 20022 is especially relevant for instant payments and international payment processing due to its support for interoperability.
Rulebooks and technical standards
The combination of regulatory requirements and technical standards ensures consistent, secure, and auditable payment processing. These include:
- Mandatory rules
(e.g., security requirements, authorization processes, clearing and settlement obligations) - Optional rules
(e.g., value-added services, reporting features, merchant incentives) - Technical standards
(PCI DSS for card security, 3-D Secure for authentication, ISO 20022 for messaging)
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Involved parties and their roles
Multiple stakeholders collaborate within a payment scheme to ensure secure and efficient payments. Each party fulfills a specific role.
In card-based payments:
- Cardholders initiate payments.
- Issuing banks handle authorization, risk, and credit.
- Acquiring banks process payments and enable merchant acceptance.
- Payment service providers and gateways connect merchants to schemes and optimize authorization, clearing, and settlement.
In account-based payments:
- Payers initiate payments.
- Payer banks verify liquidity and customer identity and forward transactions.
- Beneficiary banks receive payments and ensure correct crediting.
- Beneficiaries receive the funds.
Comparison of traditional and modern schemes
Digitalization is rapidly transforming payment schemes. Alongside traditional card models, instant payments and mobile solutions are gaining relevance.
Card-based schemes vs. mobile wallets
Established schemes such as Visa or Mastercard operate globally, while Girocard is Germany’s domestic card scheme. Mobile wallets like Apple Pay and Google Pay integrate these schemes while adding convenience and enhanced security.
Instant payments vs. batch processing
Instant payments enable real-time settlement within seconds, 24/7. Batch processing aggregates payments and settles them at scheduled intervals, often at lower cost but with delayed availability.
Modern payment schemes increasingly integrate digital services and analytics to make payment processing faster and more transparent.
Regulation and oversight of payment schemes
As core components of the financial system, payment schemes are subject to strict regulatory oversight. Regulatory frameworks ensure stability, trust, and compliance in banking and payment systems.
ECB PISA framework
This framework defines security and oversight requirements for payment schemes, focusing on risk management and system stability within the euro area.
National supervisory authorities
They oversee local payment systems, license banks and payment service providers, and enforce compliance with regulatory standards.
Security standards and compliance
Modern schemes rely on PCI DSS, ISO 20022, and regular audits to minimize fraud risks and safeguard payment integrity. New regulations for instant payments and international transfers require continuous adaptation.
Conclusion
Payment schemes form the foundation of secure and interoperable payments – from Girocard to global providers such as Visa and Mastercard. Understanding how they work enables organizations to optimize payment processing, ensure compliance, and efficiently integrate digital innovation. Unifits supports banks and payment service providers in achieving this.
Solutions for Financial Market Infrastructure
Central Infrastructures and their participants need an industry-wide solution that ensures structured, scalable testing from day one – minimizing risk and accelerating readiness across the ecosystem.
Solutions for banks
Unifits ensure continuous ISO 20022 compliance, streamlines payment testing, and enhances quality while reducing time, complexity, and effort for banks.