In this article we are going to discuss the impact that tokenization could have over the digital payments supply chain.

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Introduction: The Pulsing Heart of Global Commerce

Digital payments have quietly become the central nervous system of global commerce, influencing not just how money moves from one point to another but also how businesses and consumers alike perceive value, trust, and convenience. Where once a physical wallet filled with cash and cards seemed indispensable, the modern consumer now relies on a seamless blend of digital tools—from mobile apps and e-wallets to online banking portals—to conduct everyday transactions. This transformation didn’t happen overnight; rather, it has been the product of rapid innovation, evolving regulations, and changing consumer expectations.

Yet, behind the tap of a phone or the click of an online “Buy Now” button lies an intricate network of participants each fulfilling distinct roles to ensure every payment is authorized, authenticated, and settled without a hitch. Understanding this “payments supply chain” is crucial for anyone looking to navigate today’s commercial landscape. While to the average consumer, the act of paying seems as simple as swiping or tapping, the transaction’s journey traverses a sophisticated pathway that includes not only merchants and customers but also banks, payment processors, networks, and various service providers. Each entity brings its own piece of technology, compliance requirement, and risk management to the table.

At the center of this ecosystem are two pivotal players: acquirers and issuers. Acquirers, sometimes referred to as acquiring banks or merchant acquirers, are the facilitators who enable merchants to accept digital payments. They establish the technical and financial arrangements necessary for every transaction to travel through the complex rails of card networks—like Visa, Mastercard, or other regional schemes—and land safely into the merchant’s bank account. In return, acquirers charge fees for the service they provide, reflecting the infrastructure costs, risk mitigation, and customer support they must handle.

On the other side of the exchange are issuers—the banks or financial institutions that grant consumers access to payment instruments, whether these are traditional credit and debit cards, digital tokens stored in mobile wallets, or virtual cards used in online checkouts. These issuers underwrite the risk of lending (in the case of credit cards), manage the logistics of cardholder enrollment, and shoulder the burden of fraud detection and resolution. In compensation, they receive a share of the transaction fees—often known as interchange fees—which form a fundamental revenue stream in the digital payment lifecycle.

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But these two power players do not operate in isolation. Payment networks ensure that transactions initiated by consumers reach the right issuer and circle back to the acquiring entity with an approval or decline. Payment processors handle the transaction routing and messaging, offering specialized platforms that integrate with point-of-sale (POS) systems and e-commerce checkouts. Payment service providers (PSPs) bundle many of these functionalities, acting as one-stop shops for merchants seeking to unify online and offline payment acceptance. Meanwhile, gateway providers deliver secure channels for encrypted communication of transaction data, enhancing consumer trust and reducing the potential for data breaches.

The revenue model within this ecosystem splits in multiple directions, creating a tapestry of fees and cost structures. When a merchant pays a transaction fee—often represented as a merchant discount rate—that charge is essentially parsed out among several parties. A significant portion goes to the issuer as an interchange fee, rewarding it for taking on the risk of extending credit or maintaining the consumer’s deposit account. Another part goes to the card network as an assessment fee, compensating it for maintaining a global payment infrastructure and brand recognition that instills confidence in both merchants and customers. The acquirer or PSP keeps its share—generally a service fee or markup—to cover the operational, technological, and customer support services provided to the merchant.

To further complicate matters, regulatory bodies and national payment councils in various jurisdictions impose rules intended to foster competition, secure data, and protect consumer interests. As a result, what a merchant ultimately pays per transaction can differ depending on the region, the type of card or payment method, and the risk profile of the transaction. The ecosystem thrives on these interconnected relationships, adapting to new technologies, shifting consumer behaviors, and emerging threats.

It is in this space—where compliance meets innovation and convenience meets caution—that the future of commerce takes shape. Emerging technologies like digital wallets, biometric authentication, and payment tokenization continue to disrupt old patterns, bringing both increased security and fresh economic considerations. Payment service providers, for instance, must evaluate how new rules and tools affect transaction fees, data ownership, and customer loyalty. Acquirers and issuers must determine how to remain competitive while balancing innovation with rigorous compliance.

By peeling back the layers of the digital payments supply chain, we see how each node interlocks with others to form a system that is as complex as it is indispensable. This intricate arrangement is what allows you to order a pair of shoes from halfway around the world with just a few keystrokes—and ensures that the merchant delivering those shoes is compensated reliably and securely. In the sections that follow, we will delve deeper into the roles of acquirers, issuers, and the other silent architects of this commerce network, while also exploring how technological trends like tokenization can shift the economic landscape for payment service providers. Ultimately, understanding the structure and financial underpinnings of digital payments is the key to unlocking a broader comprehension of modern commerce and the opportunities it presents.

Economic Ripples of Authorization and Fraud: An Essay on the Dynamics of Digital Payments

One of the most important, yet often overlooked, elements of the digital payments ecosystem is the authorization process—the moment an issuing bank decides whether to approve or decline a transaction. While consumers experience this in the blink of an eye—often receiving a quick “approved” or “declined” message—this instant decision profoundly shapes the economic destinies of merchants, acquirers, payment service providers (PSPs), and gateways. In many ways, authorization is the linchpin of profitability: each approved transaction constitutes a successful sale, whereas every decline erodes potential revenue. At the same time, these stakeholders must remain constantly vigilant against fraud, recognizing that an uptick in fraudulent activity leads to chargebacks, penalties, and reputational damage.

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For merchants, authorization rates carry direct revenue implications. A high approval rate means more completed sales, which in turn translates into steadier cash flow. In industries where margins can be razor-thin, even a small improvement in approval percentages can have an outsized impact on overall profitability. Consider, for example, a merchant juggling thousands of transactions a day: if a mere five percent of these were previously declined for avoidable reasons—such as unnecessary risk filters or technical glitches—and those declines could be converted into approvals, the merchant’s daily revenue could spike significantly. Beyond the immediate boost to income, higher authorization rates also improve the customer experience. Fewer instances of “false declines” build trust and reinforce consumer loyalty, ensuring a shopper is more likely to return for future purchases.

Authorization rates also play a central role in determining the fortunes of acquirers and PSPs. These entities typically earn income on each successful transaction they process, sometimes taking a small percentage of the sale or charging a fixed fee per transaction. When more transactions are approved, both the acquirer and PSP see their revenues rise accordingly. This symbiotic relationship encourages acquirers and PSPs to invest in sophisticated fraud-detection and payment-routing tools, hoping to strike a delicate balance: they want to accurately weed out illegitimate transactions without unintentionally rejecting valid ones. A stable, predictable stream of approved transactions not only assures consistent income but also bolsters the reputation of acquirers and PSPs in an increasingly competitive market. Merchants who find that one provider consistently delivers higher authorization rates tend to shift more volume toward that provider and may even recommend it to peers.

Gateways, though somewhat removed from the direct revenue flow, nonetheless feel the downstream impact of these trends. Their role centers on securely transmitting transaction data between the merchant and the acquiring bank. A reliable, high-performance gateway can help minimize technical errors, timeouts, and communication lapses, all of which contribute to declines. Through robust integrations with card networks and advanced security protocols, gateways can reduce the chance of false declines, streamline transaction routing, and improve the overall approval experience. In turn, this leads to a virtuous cycle for the gateway: satisfied merchants are less inclined to switch providers, creating stable demand for the gateway’s services and fostering opportunities for incremental fees or service packages.

However, the quest for higher authorization rates brings an ever-present challenge: fraud. As merchants and their payment partners encourage greater transaction approvals, they must ensure that these greenlit transactions are legitimate. An influx of fraudulent charges triggers chargebacks—disputed transactions that fall back on the merchant or acquirer to resolve—and typically result in hefty penalties from card networks. Consistent patterns of fraud not only damage the merchant’s reputation but also place acquirers and PSPs under scrutiny from both card schemes and regulatory bodies. Consequently, all parties must constantly fine-tune their risk management strategies, using machine learning algorithms, behavioral analytics, and enhanced identity verification to keep deceitful activity at bay.

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Balancing these forces—maximized approval rates on one hand and minimized fraud on the other—forms a critical tension within the digital payments universe. This is where effective collaboration between merchants, acquirers, PSPs, and gateways becomes essential. By pooling resources and sharing data, they can refine predictive models and fraud-detection tools, distinguishing genuine cardholder behavior from suspicious patterns with ever-greater precision.

Ultimately, higher authorization rates do more than merely increase short-term revenue; they strengthen the entire infrastructure of digital commerce. Merchants achieve healthy sales; acquirers and PSPs gain consistent transaction volume; gateways uphold their reputations for reliability; and customers, facing fewer barriers at checkout, enjoy the kind of frictionless experience that has come to define modern consumer expectations. When done right, this harmony of technology, trust, and risk management benefits every participant in the payment chain—and drives global commerce toward an increasingly digital future.

Tokenization: A Transformational Force in Digital Payments

In the fast-moving landscape of digital transactions, few technologies have left a mark quite as indelible as tokenization. Initially, tokenization may seem like a purely technical process—one that replaces sensitive card details with a string of seemingly random characters—but its impact extends far beyond the world of data encryption and IT security. As payment methods have grown more sophisticated, so too have the tactics of fraudsters. Against this backdrop, tokenization has emerged as a shield, fostering consumer trust, refining the authorization process, and reshaping the economic foundations of acquirers and other stakeholders in the payments ecosystem.

Tokenization functions by swapping out a customer’s primary account number (PAN) and other critical card credentials with a “token.” This token retains just enough information to authorize a payment without ever exposing the original data. In practical terms, a thief who intercepts or steals the token cannot extract the real card details without unwinding the entire tokenization system, a feat that would require significant illicit access to secure databases. The result is a system where merchants rarely handle raw credit card information. Instead, they transmit or store tokens, which—on their own—have little value on the black market. This robust layer of security calms the anxieties of online shoppers, encourages more frequent use of stored credentials, and reduces the fear that any single data breach might compromise millions of cardholders.

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Yet, the influence of tokenization extends well beyond the domain of security. A significant benefit emerges in the realm of authorization rates. Because tokenized transactions appear less risky to issuers, banks are more inclined to approve them, reducing the incidence of “false positives” and unnecessary declines. In a practical sense, this means fewer lost sales for merchants and more transactions flowing through acquirers and payment service providers (PSPs). An improved authorization rate is not just a minor efficiency gain—it can transform the financial trajectory of businesses reliant on quick, frictionless consumer purchases. In scenarios like in-app ordering or one-click checkouts, even a slight uptick in approvals can substantially enhance bottom-line results.

Acquirers, positioned at the juncture of merchant services and card network relationships, feel the ripple effects of tokenization profoundly. On one level, a reduction in fraudulent activity helps acquirers limit the headaches of chargebacks and potential penalties from card networks. Fraud mitigation is often a delicate balancing act: blocking too many transactions leads to frustrated customers and lost sales, while failing to filter out enough suspicious attempts can trigger higher fees or penalties. Tokenization delicately shifts the odds, removing many of the vulnerabilities that criminals typically exploit. Consequently, acquirers face fewer disputes and can focus on deepening partnerships with merchants, rather than funneling resources into damage control.

Moreover, tokenization grants acquirers a new avenue for differentiation. In an industry where margins can be narrow and competition fierce, providing tokenized solutions can be a compelling value-add. Merchants eager to shield their customers’ information often prefer working with acquirers that simplify data security and compliance obligations, such as the burdens imposed by the Payment Card Industry Data Security Standard (PCI DSS). By adopting tokenization, acquirers can brand themselves as secure, forward-thinking partners and, in many cases, charge a premium for these integrated services. They may also forge new revenue-sharing models with token service providers who manage the vaulting of card data and the issuance of tokens. Through these arrangements, tokenization does more than just secure transactions—it can bolster an acquirer’s market share and diversify its income streams.

Over time, tokenization is likely to become a baseline expectation in payments, rather than an optional feature. A well-implemented tokenization strategy elevates everyone in the ecosystem: cardholders, merchants, acquirers, issuers, and PSPs. By making sensitive data harder to steal, it shields businesses from reputational harm, reassures cardholders of their security, and raises approval rates for legitimate purchases. Such a holistic shift in trust and technology cannot help but alter the fundamental economics of payments for acquirers. When transactions carry less risk, acquirers gain freedom to explore new tools, cultivate stronger merchant relationships, and deliver a smoother, more efficient experience for all parties involved.

In sum, tokenization represents a pivotal innovation in the digital payments domain. Far from a mere technical safeguard, it stands as a catalyst for both higher authorization rates and robust acquirer economics. By reducing fraud exposure, streamlining transaction flows, and enhancing consumer confidence, tokenization has set the stage for a new era of digital commerce—one in which secure, token-based payments become the undeniable standard for seamless, trustworthy transactions.

Tokenization and the Evolving Power Dynamics in Digital Payments

In the realm of digital payments, tokenization is often hailed as a powerful safeguard against fraud and data breaches, a method for replacing sensitive card numbers with unique “tokens” that, on their own, have little to no exploitable value. For merchants, tokenization lightens the burden of storing raw credit card data and navigating stringent compliance standards; for consumers, it brings peace of mind and fosters trust in online commerce. Yet, while these security advantages are indisputable, they also mask a deeper economic shift quietly unfolding in the industry. At its core, tokenization is not just a technological innovation; it is also a strategic move by global card networks—such as Visa, Mastercard, and others—to reconfigure the economic structure of payments and position themselves at the epicenter of value capture.

Historically, acquirers have occupied a crucial place in the payment chain by facilitating merchant onboarding, processing transactions, and offering security features like card vaulting and fraud detection. Their economic model depended on earning a portion of the total transaction fee—known as the merchant discount rate (MDR)—and on selling additional services that differentiated them from competitors. For instance, an acquirer might tout advanced risk management solutions or specialized tokenization services to attract merchants with complex needs. Now, as tokenization gains traction under the watchful guidance of card networks, much of that specialized security becomes standardized, embedded within the network’s infrastructure, and governed by the network’s rules.

The networks’ push toward uniform tokenization effectively curtails the ability of acquirers to stand out based on security innovation. No longer do merchants have to rely on the acquirer’s proprietary tools to store card data; the networks mandate (and control) the tokenization process from start to finish. While this standardization boosts overall security, it also has a commoditizing effect on acquirers’ offerings, forcing them into a narrower role as transaction “pipes”. With each card replaced by a network-issued token, acquirers lose direct control over how data is managed and, consequently, how they might differentiate themselves. As the technical complexity of storing card numbers and preventing breaches shifts higher up the chain to the networks, acquirers are left competing largely on price or basic service levels rather than distinctive risk or vaulting capabilities.

From the networks’ perspective, controlling token provisioning and lifecycle management comes with a multitude of economic benefits. First, they gain a vantage point into nearly every tokenized transaction—a treasure trove of data and insights. Second, by running these tokenization services, they create new revenue streams. Even small token-related fees, when multiplied across the billions of transactions flowing through their systems, can become extraordinarily lucrative. Finally, by mandating that all parties rely on network tokens, card networks cement their gatekeeper status, ensuring that acquirers and merchants must comply with network-defined processes and fee structures if they wish to benefit from tokenization’s higher approval rates and fraud protection.

In effect, the networks’ deeper integration into the transaction lifecycle allows them to capture a larger slice of the fees that merchants pay. Traditionally, the merchant discount rate would be divided into interchange fees for issuers, assessment fees for the networks, and acquirer or PSP markups. But as tokenization becomes synonymous with reliable security, networks can justify incremental costs tied to token creation, usage, and ongoing maintenance. Over time, as tokenization becomes ubiquitous, these network-imposed fees and conditions can reduce acquirers’ margins, effectively transferring economic power to the networks.

For acquirers, this trend may be unsettling. Their longstanding ability to differentiate themselves based on PCI compliance expertise or robust data management tools fades when the fundamental mechanics of data security rest in network-driven tokenization platforms. They risk being reduced to utility providers, handling transactions without owning the higher-value segments of security and analytics. This commoditization exerts downward pressure on their margins, as merchants become more inclined to compare acquirers primarily on cost and reliability rather than on specialized security features. Over time, as price competition intensifies, the acquirer’s share of the payment pie narrows, while networks that oversee tokenization can bolster their revenue and strategic influence.

In short, tokenization marks a pivotal moment in digital payments, weaving together genuine security benefits with a seismic shift in the industry’s balance of power. While merchants and consumers enjoy stronger safeguards against fraud, the deeper ramifications for acquirers and payment providers could be far-reaching. The networks, by inserting themselves more forcefully into the token generation and management process, stand poised to command a larger fraction of revenue and dictate the flow of digital payments worldwide. It is a testament to the dual nature of innovation: even as tokenization addresses key vulnerabilities, it also underscores how technology, when adopted at scale, can reorder economic dynamics and concentrate power in the hands of those who define the standards.

Conclusion: Networks Ascendant in a Tokenized Landscape

In the grand tapestry of digital payments, tokenization stands out as both a technological triumph and a strategic pivot point. Its promise of enhanced security—transforming vulnerable card numbers into randomized tokens—is undeniable. By neutralizing stolen data and simplifying compliance burdens, tokenization has revolutionized how merchants protect sensitive information. At the same time, however, this innovation has quietly recast the distribution of power among the major players in the payments ecosystem. More than ever, card networks are emerging as the central authorities of token-based transactions, and their ascendancy is unmistakably transforming acquirers into increasingly commoditized entities.

A crucial aspect of tokenization is that it no longer relies on proprietary solutions managed by individual acquirers. Instead, card networks typically mandate that all parties—merchants, acquirers, and issuers—adopt their standardized token services. These universal platforms streamline security but also diminish the capacity of acquirers to differentiate themselves. Without the unique ability to vault or tokenize data, acquirers can no longer command premium fees for robust security or specialized fraud tools that were once their hallmark. Instead, they are relegated to a narrower operational function: ensuring transactions flow smoothly from point A to point B, but under the strict guidelines and pricing structures set forth by the networks.

The economic ramifications of this new arrangement are profound. When acquirers can no longer innovate distinctively around tokenization, pricing power inevitably wanes. Merchants, previously willing to pay a higher transaction fee for superior risk mitigation or compliance support, begin to see acquirers as interchangeable “pipes.” With tokenization now handled by network-mandated processes, decisions about which acquirer to use may boil down almost exclusively to cost and baseline reliability. Faced with razor-thin margins and fierce competition, acquirers may be forced into a “race to the bottom” on pricing, steadily eroding their once-lucrative revenue streams.

Moreover, this compression of margins is not a transient phenomenon; it is structural and persistent. Because networks effectively own the tokenization layer—and, by extension, a more significant piece of the data, analytics, and authentication pipeline—they can capture a greater portion of the overall transaction fees. Little by little, networks can introduce or adjust token-related charges, confident that acquirers and merchants have no practical alternative. Acquirers that attempt to circumvent these token services or build competing standards find themselves locked out of the networks’ ecosystems, which remain indispensable for accessing the global consumer base. Over time, this dynamic cements the networks’ position as gatekeepers, funneling additional revenue streams into their coffers while leaving acquirers scrambling to preserve slim markups.

The trajectory points to a stark conclusion: as tokenization proliferates and card networks tighten their grip on its mechanics, the business model of the traditional acquirer becomes increasingly untenable. What began as a specialty service—delivering sophisticated security and compliance solutions—now morphs into a basic utility that must conform to network-dictated protocols. Without meaningful levers to stand apart, many acquirers risk devolving into “bad businesses,” where recurring costs overshadow diminishing revenues. Larger, more diversified acquirers might seek temporary refuge through acquisitions, mergers, or by branching into ancillary services like gateway technologies or data analytics. Yet even these expansions occur within the overarching framework dominated by network-driven tokenization standards.

Hence, while tokenization has indisputably fostered a safer, more trustworthy digital commerce environment, it has also set in motion a restructuring of payment industry economics. Card networks, armed with the authority to issue and manage tokens, inch closer to a position of unassailable strength. For acquirers, the future is fraught with existential challenges: absent genuine innovation in areas outside network control, they face a continual slide into commoditization. In short, the world is rapidly becoming one in which networks call the shots and reap a larger share of each transaction’s rewards—leaving acquirers to grapple with shrinking margins, diminished influence, and an uphill struggle for relevance in a tokenized age.

After seeing Mastercard´s Investor Community Meeting, I wanted to share with you a few thougths that I had.

What did called my attention was how their strategy was not changing at all. The opportunity, the go-to-market strategy, the use cases, the virtuous cycle… everything remained the same. But I wanted to share some thoughts around the shift to digital.

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The Shift to Digital

The main opportunity for the payment networks remains to be the shift from checks and cash to digital payments. There are $35Tn payments opportunity in check and cash between consumer purchases ($11Tn) and new flows ($24Tn), compared to the $26Tn that are already in card payment networks.

We could say that this opportunity is easy for Mastercard, Visa, or American Express to be penetrated. Nevertheless, there are some economies that still have >50% of its payments done by cash.

This is because cash is one of the most private payments methods in the world, as it does not record any data of its payment. You just need to verify that the cash is not false. Nevertheless, the cash is not as ease and safe as a carded payment transaction, and who decides how the transaction is going to be done are the suppliers (merchants).

For the merchant, the most important part of the payment is the acceptance, which also is the most important part in the supply chain, because if there is not any acceptance point, the payment wont be enabled. And cash, is the riskier payment method for the merchant, as it could be false, it could be robbed, it deteriorates over time, or it could make it harder for business owners to manage their finances/accounting.

However, card payments networks are extremely safe, because acquirers and issuers (merchants and consumers banks) need to comply with some rules in order to allow them to connect to its network to make payments. Those rules are related to identity solutions, cybersecurity, settlement times, passwords, or banking services.

For those who don´t know how carded payments work, those payments have a few steps, that add security layers to enable the payments. Let´s see how explains how a payment works:

“While it may seem you just pull your credit/debit card out of your pocket at Point of Sale (PoS) and in a few seconds your payment is deemed successful, there is a dizzying amount of work being done in the background in the meantime.

Once you insert the credit card into the Target’s PoS, your card credentials and transaction data are captured, and then the merchant acquirer such as Adyen sends the data to the card networks (Visa/Mastercard) who subsequently queries the customer’s issuing bank for authorization (fund availability, fraud checks, risk analysis etc. are also done here). Once green lighted by the issuing bank, the authorization flows through the card networks to the merchant acquirer (e.g. Adyen), and the merchant (the retailer) receives confirmation from its merchant acquirer that the transaction is authorized, and then the sale is completed. This is called the authorization phase. Then the settlement phase starts.

To start the payment process, the credit card issuing bank provides credit on behalf of the customer to settle the transaction which is routed through the card networks who then passes the transaction to merchant acquirer’s back-end processor for settlement. The back-end merchant processor then settles the net outstanding balance between the card-issuing bank and the merchant acquiring bank (where the merchant has its merchant account). The merchant bank will then credit the merchant’s account for the amount of the purchase, less fees charged (i.e. Merchant Discount Rate or MDR) for facilitating the transaction across multiple parties.”

In the authorization step, the card network (i) analyse the consumer funds availability related to the liability he is going to issue, (ii) assess the risk of this transaction, (iii) record the history of the consumer payments, (iv) verifies that all this information is true, and (v) the issuer bank will transfer the money to the merchant (assuming a liability risk if the consumer does not have the funds required for the payment).

Carded payments have the highest rates of security because (i) they collect the biggest amount of data from merchants and consumers, (ii) acquirers and issuers have to comply with several security rules to be able to make payments, and (iii) if any of the parts, the consumer or the merchant, does not settle their liability, their bank will assume the liability. So, in a carded payment transaction all the incentives are aligned to enable safer payments, and that is why it is becoming the most preferred payment method for businesses.

From Card-Present to Card-Not-Present

As the digital payments have expanded its use cases and penetration, we have seen how digital payments fraud have also expanded.

When we think around digital payments, there are mainly 2 kind of payments in a card payment network, (i) card-present, and (ii) card-not-present payments.

This is basically, when the consumer is realizing the payment in person, and when he is not. This difference is really important in the payments industry because as the consumer is not present, it adds a significant risk to the payment.

Imagine someone, who wants to buy a product/service from you, and they tell you they will pay you in cash by postal mail, instead of coming and giving you the cash in person. The same problem happens with digital payments, but the difference is that it could be a russian hacker, who is making a fraudulent payment.

Historically, carded payments have been realized in person, with a card, which has a PIN password, and you need to wait for the transfer to be confirmed. Now, you are probably selling your digital goods to people who are not even in the same continent as you, where banks do not comply with the same national banking regulation, and could have some other issues that add significant risk to the transaction.

This is why card payments have become so important, because they have add some rules that every bank need to comply with to enable their payments globally, and then they are the ones who have the best data to enable those payments in a safety way.

So, with this accelerated digital trend, carded payments systems are becoming more and more important.

Mastercard´s Strategy and Visa´s Unit Economics

The increased risk in payments due to gloablization and the digitalization of the world has accelerated the adoption of card payments from merchants, which is the first step of the expansion of a payment system.

The way you expand your penetration in this industry is (i) you develop an offering for merchants, (ii) you increase your acceptance, so consumers can access to the supply they want through those networks, and (iii) you attract consumers to your network, so you drive total processed volumes up.

To penetrate this industry, and expand their acceptance, Mastercard has been very focused on becoming the main partner for the new digital players. Mastercard was the first one in the industry to start doing value added services for those partners.

Mastercard saw the opportunity of building partnerships with online players (PSPs, ISVs, Gateways…) because their peers were focused on increasing their reach with the large banks. Mastercard started to offer new services to their ecosystem, which increased the percentage of transactions those partners moved to the Mastercard Network.

The approach Mastercard took to drive the adoption of those partners was by becoming the advisor for those partners, and offering them (i) cybersecurity solutions, (ii) business insights, (iii) PSPs and Gateways solutions, (iv) tokenization and authentication, and (v) open banking.

Most of those services had great adoption by their customers, with ~30% of Mastercard´s revenues coming from those services. So, Mastercard started to gain market share in the digital acceptance side due to this partners. Then, the pandemic arrived, and the digital world accelerated, so we saw how Mastercard was the most benefitted payment network from this new environment due to the investment they did.

So, we saw how Mastercard start to recover the TPV share they lost because they were focused on supporting the new digital trends, instead of the large legacy acquirers. Mastercard share passed from being ~40%, when they started to support the digital world, to 35% the year of the pandemic, to recover ~3% of market share in the next 3 years due to the adoption of new digital purchases methods.

Additionally, as those new payment methods were riskier than traditional payments, it gave them also the opportunity to increase their prices, and have higher net take rates than peers.

As you can see, Mastercard net take rates have grown ~2% CAGR, while Visa´s have decreased ~0.4% CAGR, since 2015.

The thing here, is the opportunity that both companies have. Remember that card payments network is an oligopoly controled by those two companies, so prices war are unlikely to happen becuase both companies are aware that reducing prices will destroy their economics.

However, we can see how Mastercard has ~27.5% higher net take rate than Visa, and Visa, with 27% “lower prices” has ~13% higher operating margins due to their bigger scale they have.

What I think, is that Visa is very likely to increase significantly their prices as they close their gap with Mastercard in terms of how developed they are in the digital world. And Mastercard is very likely to increase margins as they continue to gain share while Visa is trying to close the digital gap.

A Bright Future for Card Networks

As the world continues to embrace digital payments, Mastercard and Visa stand to benefit from the growing shift away from cash. Both companies are positioned to capture a significant share of the $35 trillion opportunity in digital payments, though they are taking different approaches.

Mastercard’s strategy of building partnerships with digital-first companies has given it an edge in the rapidly expanding digital payments market, while Visa’s scale and market dominance provide it with a more stable foundation. The key going forward will be how these two giants navigate the growing demand for digital payment solutions and adapt to new security challenges in an increasingly globalized and online world.

In the long run, both Visa and Mastercard are likely to see growth in their digital payment segments. However, Mastercard’s investments in innovation and its focus on building relationships with digital players may provide it with a slight edge in terms of pricing power and margins. That said, Visa’s sheer scale and experience will help it remain a formidable player in the card payments space. For investors, both companies offer exciting opportunities as they capitalize on the digital payments revolution.

Pedro Gutiérrez
Founder & Analyst, Gutiérrez Capital

El objetivo de este post no es redactar una tesis short sobre la compañía. El verdadero objetivo es compartir una serie de red flags sobre el futuro de su negocio y sus economics. Por lo que, no voy a hablar de su historia, ni voy a realizar un deep dive sobre la compañía, sino que pretendo ir al grano, y presentar cada una de estas dudas de manera directa y objetiva.

PayPal competitive edge

PayPal nació en 1998 con un objetivo específico, permitir. pagos online. El objetivo de PayPal era convertirse en el sistema de pagos online de referencia, ya que permitía añadir el botón de compra online para tu página web. Sin embargo, a día de hoy su posición competitiva se ha visto amenazada por plataformas como Stripe o Square.

Históricamente las transacciones más rentables han sido las que se han cobrado a los merchants (c2b, b2b o cross-border), en las cuáles la figura de PayPal con el paso del tiempo ha dejado de tener sentido.

Cuando nació PayPal no existía un sistema de pagos que permitiera los pagos en páginas web, por lo que nació PayPal y se convirtió en un negocio extremadamente rentable, ya que no existía otra opción y cobraba los segmentos más rentables (c2b, b2b o cross-border).

Sin embargo, con el nacimiento de Stripe, el negocio de PayPal empezó a perder su proposición de valor. Ahora no es necesario tener una cuenta de PayPal para pagar online, sino que es posible hacerlo con tus tarjetas de crédito/débito, lo cual facilitó mucho más los pagos en línea, y se dejó de pagar con PayPal, ya que ¿quién no tiene una tarjeta bancaria?

A partir de aquí comenzó el declive competitivo de la compañía, que después se fue incrementando hasta el día de hoy donde, después de explicar la utilidad principal de PayPal, debemos comparar sus costes frente a los competidores, para de verdad, apreciar su perdida de valor competitivo.

• PayPal: 3.49% + 0.49 cents.

• Stripe: 1.4% + 0.20 cents para transacciones nacionales y 2.4% y 0.2 cents para cross-border.

• Square/CashApp: 2.9% + 0.30 cents.

Viendo esto, vemos que la solución que ofrece PayPal es mucho más cara, pero que además no es tan flexible como las otras dos soluciones.

Por todo esto, PayPal decidió adquirir Braintree, Venmo y Xoom, donde los 2 últimos pretenden ser un sistema de pagos P2P o A2A, básicamente sirven para enviar dinero a tus amigos a cambio de un 1.75%-2% de fee lo cual no tiene mucho sentido en el mercado con la llegada de FedNow, por lo que voy a comentar el primero (Braintree).

Braintree es actualmente lo más parecido a Stripe, sin embargo, en mi opinión todavía muy lejos competitivamente.

Braintree es un PSP o Payments Service Provideer, y generalmente es más barato que Stripe con 2.49%+0.49 cents de fee. Sin embargo, Stripe le supera ampliamente en una cuestión primordial, la cantidad de medios de pago aceptados, ya que Braintree al pertenecer al ecosistema de PayPal, focalizan mucho el negocio en convertir usuarios a PayPal/Venmo poniendo excesivas trabas a quien no pertenece a ese ecosistema. Lo cual, no solo perjudica el negocio, sino que también me hace pensar si pertenecer al ecosistema de PayPal es beneficioso para Venmo/Braintree.

La destrucción de sus financials

A priori los financials de PayPal parecen estar en un momento de crecimiento sostenido.

Esta ha sido una compañía que desde 2013 ha crecido su revenue en torno al 17% CAGR y su EPS un 11% CAGR. Por lo que podríamos esperar que fuese una compañía de mayor calidad que la media.

Sin embargo, si nos adentramos en los financials de la compañía vemos en primer lugar que la pérdida de margen es debida a que cada vez sus transacciones son menos rentables (ex-credit loss).

En la anterior imagen podemos ver como las transacciones de PayPal son cada vez menos, y menos rentables. Ya que los costes por transacción han pasado de ser un 27% en 2013, ha ser un 44% en 2022. Es decir, ha pasado de tener un margen bruto del 73% al 56%. Una pérdida de casi el 20% de margen.

El problema de esto, es que lo lógico de perder margen sería reducir tus CAC (Customer Acquisition Costs) o coste de adquisición por cliente. Ya que reducir tus márgenes significa subir menos tus precios que tus costes, y por lo tanto ofrecer un producto más barato en términos relativos.

No obstante lo que vemos es que el CAC se ha disparado, y por lo tanto, los beneficios por cliente marginal se han dado la vuelta, convirtiéndose en cada vez mayores pérdidas en los mayores años.

Antes de ver el cálculo del CAC, debemos ver la evolución de los usuarios de PayPal en los últimos años. Los cuales han pasado de ser 142.6 millones en 2013 a 435 millones en 2022, un crecimiento del 13.2% CAGR.

Sin embargo, cuando hacemos los siguientes calculos:

• S&M por usuario nuevo: La cantidad de dinero invertido anualmente en S&M dividido por la cantidad de usuarios nuevos anualmente.

• Revenue incremental por usuario: La variación del revenue anual dividido entre la cantidad de usuarios nuevos.

• Beneficio incremental por nuevo usuario: El beneficio que obtiene la compañía por cada usuario nuevo que obtiene. Se calcularía restándole al revenue incremental el S&M por nuevo usuario.

Después de calcular estas métricas, obtenemos que el S&M/usuario nuevo (CAC) ha aumentado de $50.5 en 2014 a $250.8 en 2022, mientras que en el revenue incremental ocurre lo contrario, decrece de $51 en 2014 a $32.1 en 2022. Por lo que como resultado, PayPal ha pasado de ganar $0.5 en 2014 por cada nuevo usuario, ha perder $218.7 en 2022.

De esta forma, los financials de PayPal se están deteriorando en el tiempo, y conforme más intente crecer su base de usuarios más pérdidas de márgenes irá obteniendo.

PayPal´s Management team

Desde el año pasado, debido a la desastrosa situación y trayectoria del stock, PayPal ha ido renovando su management team.

En primer lugar, el año pasado John Rainey dejó su puesto de CFO en PayPal para asumir el mismo puesto en Walmart, fue el primero en dejar el barco, luego le siguió el CIO, y finalmente sustituyeron al CPO.

Toda esta renovación del management se ha debido a la necesidad de cambiar la trayectoria que venía siguiendo la compañía. Los grandes owners han ido dejando el barco, lo que terminó dando como resultado a una caída drástica del stock (78% desde 2021).

Sin embargo, aunque hayan conseguido cambiar a la mayoría del management, el único puesto para el que no han encontrado sustituto es para el CEO/Presidente, Dan Schulman, el cual lleva a cargo de la compañía desde 2015, y se jubilará a finales de año (link jubilación de Dan Schulman). Y para cuyo puesto, está siendo bastante difícil encontrar un sustituto, ¿será porque nadie quiere hacerse cargo de una compañía que está en sus últimas?

Muchas gracias por vuestra atención.

Un saludo,

Gutiérrez Capital.

¿Qué son los sistemas de pagos?

Los sistemas de pagos nacieron para dar una solución mucho más efectiva a la necesidad social humana, el comercio. Cuando intercambiamos bienes satisfacemos necesidades subjetivas de los prójimos, gracias a la división y especialización del trabajo (Adam Smith - La riqueza de las naciones).

La naturaleza capitalista del ser humano requiere el comercio, ya que todos los seres humanos tenemos una serie de necesidades subjetivas, para las cuáles necesitamos una serie de bienes para satisfacerlas, pero estos bienes no siempre son infinitos o están a disposición de todo el mundo, lo que genera una necesidad de propiedad privada. Estos bienes sobre los que es necesario determinar un estado de propiedad privada, son los que Menger denominaba bienes económicos (Carl Menger - Principios de Economía Política).

Según Menger, la propiedad privada era una consecuencia de la escasez de estos bienes necesarios para la satisfacción de nuestras necesidades, ya que si todo el mundo puede adquirir infinitas unidades de ese bien ¿qué sentido tiene la propiedad privada?

Menger explicaba que existe una relación cuantitativa entre las necesidades (cantidad necesaria de bienes) y los bienes disponibles necesarios para satisfacerlas. Cuando la cantidad de bienes disponibles es menor que la de los necesarios (escasez) estos se convierten en los bienes económicos anteriormente mencionados, dando lugar a la propiedad privada, ya que al no ser posible satisfacer todas las necesidades de la población, se debe determinar la propiedad sobre ese bien para que no haya un conflicto. Es decir, si la sociedad determina que poseo “x” bien escaso, la sociedad respetará mi propiedad sobre ese bien.

Pero la sociedad, para solucionar ese problema conflictivo de la escasez, tengo una cantidad de bienes “x” superior que mi necesidad de estos bienes, pero me hacen falta unos bienes “y”, los cuáles tendrá otra persona, pues recurrió al comercio. Intercambio el exceso de bienes “x”, por el exceso de bienes “y” que tendrá otra persona.

Esta solución trajo otro problema ¿qué ocurre si no se pueden realizar las transacciones de forma directa? Es decir, que cada agente tenga exceso de bienes disponibles que necesita la otra persona, pero el exceso de bienes que posee la otra persona no satisface nuestras necesidades.

Por ejemplo, si un americano quiere adquirir aceite de oliva, y un español al que le sobran las cantidades que necesita el americano de aceite de oliva y quiere salmón, y el noruego que tiene el salmón quiere petróleo americano, ninguno puede realizar la transacción comercial de forma directa porque no poseen los bienes que quiere el agente al que le sobran bienes que ellos necesitan, pero si la podrían realizar de forma conjunta (asociándose). Para dar resultado a esto, se crearon las obligaciones financieras/promesas de pago (deuda). El español venderá al americano el aceite de oliva a cambio del petróleo para comprarle salmón al noruego, y ya tendríamos la transacción completada.

Pero en una sociedad donde existen millones y millones de individuos las relaciones comerciales se vuelven mucho más complejas lo cual generó otro problema. Es decir, ¿Cuánto tiempo puede tardar el español en comprar el salmón si hay millones de transacciones necesarias entre los dos? Para dar solución a esto y generar un orden, la sociedad comenzó a utilizar ciertos bienes para realizar transacciones como el oro. Así en vez de que el español, tenga que conseguir el salmón, directamente paga con la cantidad de oro equivalente en valor al salmón. Estos bienes que empezaron a utilizarse como la unidad de valor e intercambio pasaron a denominarse dinero, y a ser la forma más común de unidad de intercambio.

Sin embargo, estos bienes denominados dinero, no dan una solución definitiva al problema comercial. Ahora, surge otro problema, gracias a la facilidad que tengo ahora para intercambiar, estoy realizando demasiados intercambios. Al realizar tantos intercambios se generan una serie de problemas como la velocidad o el coste de transacción, por lo que surge una nueva entidad que se dedica a gestionar los pagos y cobros, los bancos.

Ahora por ejemplo, en vez de ir cargando oro, e ir pagando con oro en todos los comercios, voy a llevar una nota a nombre de “x”, que represente el valor del oro. Es decir, vamos a pagar con una deuda de este tipo de entidades denominada en oro.

Pero ahora, el banco necesita llevar una contabilidad exhaustiva de cuánto dinero debe a sus clientes y comercios, que probablemente tengan otro banco. Y así, en vez de existir millones y millones de transacciones, existen las transacciones entre este tipo de entidades. Es decir, si existen 2 bancos, Banco A y Banco B, cada uno con 3 clientes, y el cliente 1º del banco A debe 3 euros al cliente 1º del banco B, el cliente 1º del banco B debe 6 euros al cliente 2º del banco A, el cliente 2º del banco A debe 4 euros al cliente 2º del banco B, el cliente 2º del banco B debe 5 euros al cliente 3º del banco A y el cliente 3º del banco A debe 5 euros al cliente 3º del banco B, si seguís la transacción os daréis cuenta que de manera agregada el banco A debe 1 euro al banco B. Los clientes del banco A deben 12 euros (3+4+5=12) a los clientes del banco B, y los clientes del banco B deben (6+5=11) a los del banco A, por lo que A debe a B, 1 euro.

Y esto finalmente sería un payment system, es decir, los payments system serán aquellos sistemas/plataformas que son capaces de agregar y simplificar transacciones, como en el ejemplo anterior, que hemos pasado de 5 transacciones entre 6 clientes a una sola transacción entre 2 bancos.

Payments System Models

Cuando hablamos de payments systems existen una gran variedad de modelos dependiendo de la empresa que lo haya creado, pero los más comunes son dos, (i) open loop systems y (ii) closed loop.

En primer lugar, los open loop systems operan bajo el modelo hub-and-spoke. Un sistema open loop depende de la existencia de intermediarios (bancos o entidades financieras depositarias) que se unan al sistema. Estos intermediarios formaran relaciones comerciales con las end-parties. El ejemplo, más típico que tenemos de open loop systems son Visa o Mastercard.

Este tipo de payments system permite hacer transacciones entre 2 partes que no posean una relación directa, así como a los propios bancos. Hoy en día la mayoría de sistemas de pagos electrónicos operan con esta estructura. Este sistema además permite una de las formas más eficientes de asignación de deudas.

La ventaja de este sistema es que permite que puedan escalar rápidamente, a medida que los intermediarios se unen al sistema de pagos, todos sus clientes finales son inmediatamente accesibles para los otros intermediarios que participan en el sistema de pagos.

En un sistema open loop, es la red la que define las reglas por las que operan los bancos, quienes a su vez deben asegurar el cumplimiento de estas reglas por los clientes finales.

En segundo lugar, tenemos los closed loop systems, los cuales al contrario que los open loop, operan sin intermediarios, es decir, los clientes finales tienen una relación directa con la red, sin necesidad de que haya un banco intermediando. Un ejemplo de este sistema sería American Express en sus orígenes o las típicas tarjetas regalo de ciertas empresas, como por ejemplo, Amazon o el Corte Inglés, que poseen un valor determinado con el que se pueden hacer compras en sus establecimientos.

Este tipo de sistemas, suelen terminar siendo híbridos, es decir, operan como closed loop para aquellos clientes con los que tienen una relación directa para después pertenecer a una red open loop para aquellos clientes finales con los que no tienen una relación directa.

La ventaja que poseen es que permiten una mayor simplicidad, ya que determinan las reglas por las que operan sus clientes finales de manera directa, y así poder actuar más rápidamente y tener una mayor flexibilidad que los open loop. Esta estructura presenta el problema de la escalabilidad, al contrario que los open loop, ya que en vez de adquirir un intermediario con “x” cantidad de clientes, deben adquirir los clientes de uno en uno.

Payments Systems Flow

Para entender bien los payments systems debemos entender la forma en la que funcionan los flujos de pagos. En un sistema open loop, funciona de forma que el primer intermediario (banco) envía un mensaje a la red que luego se lo transmite al segundo intermediario. El mensaje variará dependiendo de si son “push” o “pull” payments.

Entender cuáles son pull o push puede resultar confuso de entender, pero es esencial para entender los sistemas de pago, ya que determinará en gran parte los riesgos y liabilities que tendrán las diferentes partes de una transacción.

“Push” o “pull” se refiere a la acción de aquella parte que está introduciendo la transacción en el sistema.

• Cuando es el cliente final A el que envía dinero al cliente final B, se considera “push”. Vemos como el cliente final A es el que crea la transacción, dando la instrucción a su banco que es el que envía el dinero al cliente final B. Por ejemplo, cuando hacemos una transacción bancaria a alguien, donde somos nosotros los que enviamos el dinero.

• Cuando es el cliente final A el que toma el dinero del cliente final B, se considera “pull”. Aquí es el cliente final A el que inicia la transacción, emitiendo un reclamo de dinero por parte del cliente final B. Por ejemplo, cuando domiciliamos los pagos en nuestra cuenta bancaria, serían los comercios los que nos están cogiendo el dinero, en vez de mandárselo nosotros.

Payments System Settlement

El settlement en un open loop system se refiere al proceso por el cual los intermediarios liquidan la transacción, es decir, envían los fondos de uno al otro. La razón de que se haga una distinción entre el momento de la instrucción de la transacción y el momento de la liquidación, es porque no todos los sistemas envían los fondos (liquidación) en el mismo momento en el que crean ese pago (instrucción), es decir, entre los dos momentos se genera una deuda, que después se liquida. Estos sistemas de liquidación pueden ser de liquidación neta o de liquidación bruta.

• En un sistema de liquidación neta (net settlement), las obligaciones netas de los intermediarios participantes son calculadas por el sistema de pagos con una periodicidad (usualmente diaria). Al final del día, los intermediarios reciben una instrucción con la cantidad adeudada y dónde deben enviarla.

• En un sistema de liquidación bruta cada transacción es liquidada cuando se procesa. Es decir, en el mismo momento que se realiza la instrucción y se crea la transacción, se envían los fondos.

En los sistemas closed loop, es el mismo sistema closed loop quien decide cómo se liquidan las transacciones, por lo que dependerá del sistema.

Economic Models for Payments Systems

Los proveedores de sistemas de pagos, incluyendo bancos, networks y procesadores de pagos, hacen dinero proveyendo acceso a los sistemas de pago para los clientes finales. Luego los clientes finales incluyen consumidores, comercios y empresas. Los procesadores y redes de pago también hacen dinero proveyendo servicios de pago a los intermediarios como los bancos. Y en próximos posts estaremos tratando cada uno de los modelos de negocios de payments de manera más profunda, pero resumiendo tenemos:

• Direct and indirect fees en sistemas de pago que tengan relación directa con sus clientes. Los proveedores establecen unos precios por sus servicios, realizando ingresos de los pagos desde fuentes directas e indirectas de revenue. Las fuentes de ingresos directas vendrían de fees cobradas al cliente final (transaction fees, interest on loans, maintenance fees, etc). Y las fuentes indirectas de ingresos provienen de intereses netos sobre los depósitos, float o interchange fee.

• Interchange fee. En algunos sistemas open loop, puede definirse un interchange fee para el sistema, donde el fee lo paga un intermediario a la contraparte de la transacción.

• Value added services. En algunas ocasiones, los proveedores de sistemas de pagos ponen precios a sus productos como parte de un paquete general, por ejemplo, una cuenta corriente con acceso a los ATMs y una tarjeta de credito. De manera similar, un proveedor puede poner precios a sus servicios para aceptar pagos con tarjetas para un comercio en un paquete de precios combinado.

• Cámaras de compensación. Los costes fijos asociados a un sistema de pagos son muy altos, lo que crea gran apalancamiento operativo para sus proveedores porque el incremento marginal de costes es ínfimo. Sin embargo, los clientes de los proveedores (bancos) poseen una gran cantidad de costes de mantenimiento, que en ocasiones en las que la cantidad de transacciones sufría una repentina caída provocaba un problema, ya que el coste por transacción para un banco se disparaba. Por lo que surgieron las cámaras de compensación, para para frenar ese problema y reducir los costes del check processing.

• Ad valorem fee. En la industria de sistemas de pagos, al principio se utilizaban fees por transacción, hasta que en un momento dado surgió el fee como porcentaje de la cantidad de dinero procesada. A este tipo de fee se le llamó ad valorem fee.

• Exception transactions. En ciertas ocasiones se puede dar una excepción (error de transacción, conflictos entre partes, etc). Estas excepciones elevan en gran partes los costes por transacción, y la eficiencia y precio de resolver estas excepciones es crucial para un payments provider para que su negocio siga siendo rentable, por lo que, en los últimos años, los payments providers se han vuelto mucho más agresivos en las subidas de precios de este tipo de servicios.

Risk management

Todas las transacciones están sujetas a riesgos, sin embargo, en la industria de los sistemas de pagos se suelen agrupar en 3 tipos.

• Credit risk: El riesgo crediticio más conocido es cuando existe la posibilidad de que un cliente final no pueda pagar su deuda con un emisor de crédito. Por ejemplo, cuando un cliente final no paga su deuda de una tarjeta de crédito. Sin embargo, en los sistemas de pagos, existen también más riesgos de crédito. Siempre y cuando se genere una diferencia de momento entre la instrucción de la transacción y su liquidación se crea un riesgo crediticio.

• Fraud risk: El riesgo de fraude puede ser muy variado, sin embargo, el riesgo de fraude es el riesgo de que la contraparte genere una instrucción con la intención de no realizar la liquidación, y por lo tanto cometer fraude. Generalmente los sistemas de pagos, suelen tener unas políticas de gestión del fraude muy estrictas, y por lo tanto, suele ser el menos frecuente de los 3 tipos de riesgo.

• Liquidity risk: Este riesgo se produce cuando una de las partes no puede cumplir con sus obligaciones financieras con otra parte. En los sistemas open loop, los clientes finales tienen obligaciones financieras con los bancos, y los bancos tienen obligaciones financieras con la red. La red, a su vez, tiene obligaciones financieras con los bancos. El riesgo al que se expone la red se conoce como riesgo de settlement. Es decir, un participante de la red debe preocuparse de que el resto de participantes puedan cumplir con sus obligaciones. Pero si en una red de manera general se produce una desconfianza sobre la liquidez del resto de participantes, termina produciendo iliquidez por toda la red. Por lo que este es probablemente el mayor riesgo de una red.

Con todo esto, espero haberos guiado sobre el funcionamiento de los sistemas de pagos. En los próximos posts iremos abarcando cada uno de los diferentes sistemas de pagos que existen. Así como las nuevas tendencias dentro de esta industria.

Gutiérrez Capital