Payment Transaction Routing System for Cost Optimization

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Solution Overview

Problem

The financial services industry faces high costs and inefficiencies in processing credit and debit card transactions, particularly for smaller merchants, due to significant discount fees and interchange fees, and struggles to find the fastest and least expensive way to route payments globally.

Innovation Solution

Implementing a system that routes payment transactions through a closed-loop private payment network using email addresses and mobile phone numbers, batching transactions, and leveraging internal processing paths to reduce costs, while integrating rewards programs as an alternate currency and offering tiered payment rates based on settlement timing.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Speed

If payment transactions are routed through traditional card networks (VISA, MASTERCARD), then real-time payment processing is achieved, but transaction costs are high ($4-$5 for a $300 payment)

Engineering Contradiction:

Improvepayment processing speedVSAvoidtransaction cost

Core Design Contradiction:

SpeedVSLoss of energy

Solution Approach 1:

The patent segments the payment routing decision into multiple paths: traditional card networks for immediate real-time processing, ACH network for lower-cost alternative routing, and internal financial institution networks for optimized transactions. This segmentation allows selection of the most cost-effective path for each transaction type.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

The system changes the routing parameter from fixed (always using card networks) to dynamic (selecting between card networks, ACH, and internal paths based on transaction characteristics, amount, and timing requirements). This enables optimization of the cost-speed tradeoff by adjusting routing parameters.

Inventive Principle:

Principle #35Parameter changes

2Loss of energy

If ACH network is used for payment processing, then transaction costs are reduced (2-4 cents per transaction), but processing speed is slower compared to real-time card networks

Engineering Contradiction:

Improvetransaction costVSAvoidpayment processing speed

Core Design Contradiction:

Loss of energyVSSpeed

Solution Approach 1:

The routing system dynamically adjusts between ACH and card network paths based on real-time transaction requirements. Transactions with less urgent timing requirements are routed through ACH for cost savings, while time-sensitive transactions use card networks for speed, creating a dynamic optimization system.

Inventive Principle:

Principle #15Dynamics

Solution Approach 2:

The system applies partial real-time processing by using ACH for non-urgent transactions (accepting slower speed) while reserving full real-time card network capability for urgent transactions, achieving cost savings without completely sacrificing speed where needed.

Inventive Principle:

Principle #16Partial or excessive action

3Adaptability or versatility

If smaller merchants use traditional card processing, then they can accept credit/debit cards, but they pay significant fees without leverage to negotiate lower rates

Engineering Contradiction:

Improvecard acceptance capabilityVSAvoidprocessing fee

Core Design Contradiction:

Adaptability or versatilityVSLoss of energy

Solution Approach 1:

The patent introduces an intermediary routing system that acts as a mediator between merchants and multiple processing networks. This intermediary aggregates transactions and intelligently routes them through the most cost-effective paths, giving smaller merchants negotiating power they would otherwise lack by pooling their volume.

Inventive Principle:

Principle #24Intermediary (Mediator)

Solution Approach 2:

The system provides universal access to multiple processing paths (card networks, ACH, internal networks) through a single merchant interface, allowing smaller merchants to benefit from multiple routing options and cost structures without needing separate arrangements with each network.

Inventive Principle:

Principle #6Universality (Multi-functionality)

4Speed

If financial institutions offer faster payment processing, then customer satisfaction improves, but costs increase

Engineering Contradiction:

Improvepayment processing speedVSAvoidprocessing cost

Core Design Contradiction:

SpeedVSLoss of energy

Solution Approach 1:

The routing system incorporates feedback mechanisms that monitor transaction outcomes, costs, and timing to continuously optimize routing decisions. By learning from past transactions, the system can predict the most cost-effective fast paths for different transaction types, maintaining speed while reducing costs.

Inventive Principle:

Principle #23Feedback

Data Source

PatentUS8924294B2Methods and systems for routing payment transactions

Publication Date: 2014.12.30 CITICORP CREDIT SERVICES INC (USA)

AI summary

Methods and systems for routing payment transactions electronically involve interrogating by computer logic each payment transaction received by a payments interface processor to identify a payment destination and a payment source and to determine, according to pre-defined parameters, whether the payment transaction is eligible for processing via an internal payment transaction processor of the financial institution that minimizes processing costs. Eligible payment transactions may be routed, for example, to an internal debit or credit card processor or ACH processor, and ineligible payment transactions may be routed to external card processing networks.